Mint Sustainability Summit: Corporates comply with ESG rules, but small businesses face difficulties, says panel

New Delhi: India's rapidly growing corporate sector complies with regulations to combat climate change and boost investments, but small businesses in the world's fastest-growing economy are having a tough time adjusting, according to a panel of experts at the Mint Sustainability Summit 2024 in the national capital on Tuesday.

Tackling questions of whether corporates are doing enough to make sustainability the norm, the panel, comprising industry representatives from major Indian companies as well as top consultants, said businesses are looking for opportunities to enhance profitability within policies aimed at combating climate change.

Ashwin Jacob, partner and energy resources & industrials industry leader, Deloitte India, said, "The Indian regulator brought out BRSR  (businеss rеsponsibility and sustainability rеporting) and said the top 1,000 companies companies must comply with the higher reporting standard, which very board recognises is the minimum that needs to go in. But boards also want to know what opportunities exist for companies, depending on the industry.

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"They see this in a couple of different ways – in terms of diversification opportunities that exist for them to seize, and the risks to their existing core businesses. They are recognising the fact that India is a growth market."

Policy shift

The corporate sector has made make major changes to internal policies to comply with new regulations, those on the panel said. Larsen and Toubro Ltd (L&T), one of the country's biggest infrastructure companies, is phasing out 400 old equipment and has sensorised 14000 equipment for performance optimization, productivity improvement and reducing energy consumption, said Anup Sahay, head of corporate strategy and special initiatives, L&T. 

"Five years ago, we created a separate vertical which built expertise in the execution of solar power plants," Sahay said, adding that L&T has completed around 6GW of such projects, and is working on 16GW more.

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The shift in corporate strategy towards sustainability is due to the robust flow of investments into sustainable businesses, and including a sustainability strategy in their business plans can help companies grow, said Smitha Shetty, regional director, APAC, Achilles Information Ltd. 

More than two-thirds of all investors would back out if a company's environmental, social, and governance (ESG) disclosures didn't inspire confidence, Shetty said. "If you take that, it justifies why a business should look (at complying with sustainability norms) from an opportunity perspective," she added. 

A company that can showcase its ESG journey, even in its early stages, with the intention to being transparent has an upper hand over a business that does not want to declare anything, Shetty said.

Sustainability equals… profits?

Major corporates in the hotel industry are also moving towards sustainability owing to increasing returns. In the past, the "sustainable" tag was costly, but now, sustainable practices "are not only saving the environment, they are also saving the company's bottom line," said HC Vinayak, VP-technical, EHS & sustainability, ITC Hotels. Vinayak highlighted that practices pertaining to sustainable buildings had given the hotel company positive returns. Converting all ITC hotel buildings into green buildings made for a business case with positive returns, he said.

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Sustainable real estate development is a safety net from risks as sustainably built buildings have become the norm, said Anurag Mathur, CEO, Savills India. "We are adding 50 million square feet of commercial real estate every year, and five of our major cities are among the top 10 growth cities of the world. So that's how much we are building. A vast majority of what we are building – about 60% – are green buildings. There is a lot of demand. A very large number of occupiers would go for a green building," said Mathur. 

He added that there is a growing perception that green buildings command a premium, but it is the other way around. A non-green building offers a discount, Mathur said.

Small business stuck in the middle

The cost of complying with ESG regulations such as Sebi's BRSR may be too much for smaller businesses for now, the panel said. Micro, small and medium enterprises (MSMEs) face a critical threat, according to Shetty of Achilles Information Ltd. These companies have difficulties in financing the high cost of being sustainable, and simultaneously stand to lose business if they do not do so, she said. 

While India is doing fairly well on scope-1 and scope-2 emissions, it is lagging on scope-3 emissions, Shetty said. "These are your MSMEs, mainly. India has 30% of GDP coming from MSMEs. We have somewhere around 660 lakh such businesses. They cannot take on the burden of ESG investments right now as they have to wait for payments to come on time. Plus they feel like there no direct return on investment at this point," Shetty added.