Budgeting ESG Synergy

BY: Umang Pathak and Ramisha Jain

Whispers of ESG can be heard in every grapevine, yet the paucity of knowledge has resulted in painting ESG as a compliance burden for businesses and business leaders, and yet nothing could be farther from the truth. Climate change has brought “E” into perspective, the pre-existing corporate social responsibility ensured the continued existence of “S”, and the corporate scandals across the globe gave birth to the “G” aspect. However, this ESG fission must be ignored and a fusion-ed ESG must be adopted.

ESG in the context of a sustainable business or sustainable investing is not a moral high ground for the greater good or for combating climate change. In the context of corporate sustainability, there is a clear evidentiary established business case. Businesses are pivotal to positively contribute to the achievement of a sustainable world (finances and innovation etc.) and to also reduce the negative impact on people and the planet (i.e. other stakeholders capitalism) and hence ‘People, Planet and Profit’.

This article seeks to analyze the impact of the Indian Budget for 2023-2024 on corporate sustainability and ESGintegration as the core business strategy.

Presenting the first Budget in Amrit Kaal, the Hon’ble Finance Minister of India, Ms. Nirmala Sitaraman stated the main mantra of the government is “Investment-based development – sustainable economic development”.

While the Indian Budget 2023, may enhance the government' s sustainability agenda (i.e. fission-ed E) it lacks the focus on helping corporate achieve their sustainability goals, which are rather fusion-ed ESG. Especially because Indian government’s policy and legislative endeavours in achieving its own sustainability goals have very clear and tangible impacts not only on the businesses, business models, and business operations within the constantly evolving regulatory and statutory framework but also on individual lifestyles, expectations, and consequentconsumer demand.

India is hosting the G20 presidency for 2023, an opportunity for India to strengthen its role in the world’s economic and sustainability priorities. India has long been trying to establish itself as a global clean energy hub with its focus on energy transition to cleaner sources such as renewable energy, green hydrogen, etc., and reducing dependency on fossil fuels. Mission LiFE – Lifestyle for Environment, a movement of environmentally conscious lifestyle also
seeks to nudge individual’s lifestyle choices around sustainability and consequently the consumer goods industry.

India’s ‘Panchamrit’ declaration during COP26 (2021), net-zero carbon emission by 2070 under the revised NDCs (in August 2022), India’s Long-term Low-carbon Carbon Development Strategy submitted during the COP27 (November 2022) not only have an impact on businesses, their operations, and their business models but are also pressurizing the corporates into developing decarbonization plans and organizing financing. The recent policy revisions, declarations, and legislative changes on logistics, transportation, carbon market, e-waste, scrappage, refurbishment, and Extended Producer Responsibility, etc. are imposing significant responsibilities on manufacturers and companies that place products in the Indian market.

Lately, there have been repeated declarations by various ministers and ministries (e.g. Steel Minister) about the focus on ESG integration for companies, especially in carbon-intensive sectors.

Under the Indian Budget 2023, the ‘Green Growth’ aspect of the Saptrishi and the introduction of a “circular economy” in the budget is a laudable effort on the part of GoI in building a green economy, which in effect has created new business models for big businesses as well as MSMEs and startups.

Having said that corporations are awash with the increased burden in the context of reporting (business responsibility reporting), compliance (under increasing environment regulations), and increased corporate and director liabilities (e.g. under environment laws EPR), etc., the businesses have been struggling with the same. Thus, the industry expectations from the Indian Budget in the context of ESG integration or performance were revolving around ESG financing.

While tax incentives for startups have been extended, there is a ‘loud silence’ around the increased scrutiny of corporate decarbonization plans, elevated social risks, heightened refinancing risks, and an increasingly complex ESG regulatory landscape that could have significant implications for businesses and investors alike. The Budget was silent on decarbonizing strategies such as Carbon Capture, Utilization, and Storage, and on the roadmap of reducing
dependency on fossil fuels in the context of ‘energy security’. It is imperative to note the absence of incentives for sustainable businesses and sustainable products, especially in FMCG, retail and fashion, etc. therefore, although the Budget may have met the sustainable economic development goals of the Indian Government, it was lacking in the ‘Investment-based sustainable development’ for businesses.

Industry majors such as Vikramjiet Roy, MD of MESPL, and Jaya Vaidhanathan, CEO, BCT Digital expected rewards for ESG investments as in the case of CSR and budget allocation towards the building of ESG infrastructure such as social stock exchange to promote capital flow towards ESG. However, against industry expectations, a fiscal nudge towards ESG commitments, including the laying of ESG framework and policy, ESG parameters for structuring
incentives that could be instrumental in promoting a more enabling ecosystem for ESG adoption across sectors and institutions were missing from the budget.

Though limited in its aspect, this budget marks the beginning of a new business era by bidding adieu to the old ways of doing business. ESG infiltration is the need of the hour, especially because investors are already eyeing every slice of business through the ESG lens.

About the Authors: Umang Pathak, Founder, ESG Advisory Services and Ramisha Jain, Counsel, ESG Advisory Services

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