Corporate India is prioritising sustainability initiatives

According to the United Nations Sustainable Development Goals (SDG) Report 2022, cascading and interlinked global crises have jeopardised the aspirations set in the 2030 Agenda for Sustainable Development.

These crises– including the covid-19 pandemic in its third year and the Russian invasion of Ukraine– have exacerbated existing food, energy and humanitarian and refugee crises against the background of a full-fledged climate emergency.¹

Home to a fifth of the world’s population, India’s efforts will be critical for the global success of the SDGs. Despite low per capita emissions, India is the world’s third-largest emitter of CO2 as its energy mix is carbon-intensive. Coal is the primary source of fuel, accounting for approximately 70% of electricity generation, and the country also powers much of its transport through oil.^2,3 Inaction on climate change could lead to more than US$6 trn in economic losses for India by 2050, roughly six percent of its GDP. Those in manufacturing, construction and transport would incur some of the biggest losses.⁴ On the other hand, decarbonising India could create 287 gigatonnes of “carbon space” for the world, and realise US$11trn in economic value.^5,6

India’s impact on global success of SDGs

• The world’s third-largest emmiter of CO2
• Coal accounts for 70% of India’s electricity generation

If left unchecked, climate change could lead to

• Over US$6 trillion in economic losses for India by 2050
• That is roughly 6% its GDP

Manufacturing, construction, transport will incur some of the biggest losses.

Decarbonising India could create

• 287 gigatonnes of carbon space for the world
• Realise US$11 trillion in economic value

Both government and corporate action will be essential to realising this potential. The Indian government has pledged to achieve net-zero by 2070 and invested US$4.3bn in clean energy and climate adaptation systems.^7,8 Within the private sector, sustainability is increasingly emerging as a major pillar for new growth and strategy.

A strong sense of private sector initiative

In a survey of Indian C-suite executives, conducted by Economist Impact and supported by Accenture between April and May 2023, 55% of the surveyed Indian companies stated they are incorporating sustainability initiatives to adapt to the changing market environment.⁹ Encouragingly, executives from the energy and transportation industries—two significant contributors of carbon emissions—are particularly focused on pursuing sustainability efforts.

These findings dovetail with other India-focused surveys that highlighted climate change as a major priority for executives in light of new ESG reporting requirements.^10,11 A 2022 survey by KPMG found that 79% of the top Indian companies had published standalone ESG reports.¹² Further, 400 Indian corporations are signatories to the UN Global Compact, a voluntary commitment by businesses to implement universal sustainability principles.¹³

“There is a realisation across the board that there needs to be change,” says Anup Mathew, senior vice president and business head, Godrej Construction and head, Greener India Council, Godrej & Boyce. “Especially among leading corporates, there is an increasing realisation that we need to take a lead in demonstrating our commitment to sustainability in a much larger way. It is not only a step towards a greener future, but has also immense proven business value”

Laying foundation for sustainability initiatives

The survey findings reflect strong enthusiasm among Indian corporates for a range of sustainability initiatives. When asked about the long-term sustainability strategies currently being implemented, the top choices were setting sustainability targets (66%) and conducting regular sustainability best practice trainings and knowledge-sharing sessions in the organisation (61%).¹⁴

The popularity of these initiatives cuts across company size, with the most enthusiasm expressed by larger companies that are focusing on sustainability initiatives, such as target setting, and dedicating teams or CSR activities specifically for sustainability initiatives.

Non-financial parameters, such as sustainability-related commitments, are gaining importance for companies as a key area of evaluation, says Mr Mathew. “We look at products, not only from a revenue generation point of view, but also its impact on the environment. How do we mitigate the adverse impacts to the extent possible? Such criteria gets included in the design and development brief for our designers and associated business partners.”

Challenges to sustainability action

Even in light of positive trends, challenges remain for a wider adoption of sustainability initiatives. Increasing inflationary conditions are considered a major limitation to growth by 49% of respondents. As a result, the priorities for companies as they design their strategies may shift towards measures that address such concerns (eg through cost minimising or risk reduction strategies) over new sustainability programmes.

Importantly, for 13% of C-suite executives (where nine out of ten executives belonged to medium or large companies), an unclear pathway to implement sustainability norms and goals in their industry hinders growth prospects. This indicates room for greater policy direction in this space.

In spite of these challenges, the potential for further progress remains for Indian corporates. Maximum respondents (66%) selected target-setting as a sustainability strategy in the Economist Impact survey. However, reports suggest that companies are underperforming when it comes to such sustainability initiatives. For example, a 2022 survey by Willis Towers Watson reveals that many Indian firms have yet to set carbon emissions and net zero targets, while the quality of reporting performance tends to vary.¹⁵ Companies note that their sustainability reporting capabilities are hampered by the high costs of assessments, a lack of regulatory mandate, insufficient data and standardised metrics and a shortage of in-house capabilities.¹⁶

Mr Mathew acknowledges that incremental, near-term costs can often make it difficult for companies—especially smaller ones with fewer resources—to commit to sustainability initiatives. However, he emphasises that these are “near-term costs” that will pay off in the long run. “If you’re not adopting a greener product, it comes at a cost,” he says. “If you’re in it for the long haul and are an industry leader, you need to set the trend and drive in that direction so others will follow.” On this latter point, he adds that Godrej & Boyce has been able to incentivise its vendors to make the sustainability pivot by preferencing those with demonstrable environmental commitments. Currently over 30% of the Company’s revenues are generated from Good & Green products.

Long-term commitments gain momentum over time

ESG adoption and investment in Indian companies is growing, more so after the pandemic. Although only 27 out of the 5,180 investors headquartered in India have signed up to the United Nations Principles of Responsible Investing (UNPRI), 25 of these became signatories after the pandemic. Unlike developed countries, where the push for ESG came from institutional investors followed by the regulatory regimes, in India, policy development is taking place first, creating a market and an ecosystem that will likely result in further prioritisation of sustainability issues among corporations.¹⁷ This is also reflected in the survey: within the next 3-5 years, dedicating teams (34%) and CSR activities (32%) for sustainability initiatives is expected to become top priorities for firms. Moreover, 55% executives stated that their business strategies already account for sustainable supply chains as a key business  objective.

Prioritising sustainability initiatives for the next 3-5 years

Dedicated teams

34% Dedicated teams

CSR activities

32% CSR activities

Sustainable supply chains

35% Sustainable supply chains

Nevertheless, Indian companies are optimistic about their sustainability performance, with 77% expressing satisfaction with their organisation’s initiatives adopted in the current business environment.“That satisfaction doesn’t stem from just an emotion or feeling, but from seeing the benefits of consistently working towards those objectives,” says Mr Mathew.

Executives working in financial services, IT and manufacturing have particularly high levels of satisfaction, which reflects their current performance and long-term prospects in pursuing sustainability. For example, as a result of a push from the Reserve Bank of India (India’s central bank), banking industry groups have committed to implementing ESG and climate frameworks within their organisations.¹⁸ In the manufacturing sector, companies are investing in renewable energy sources that are lowering their emissions and costs with leaner infrastructure.¹⁹

Need of the hour

Around 40% executives mentioned that conducive policy environment will be key to driving adoption of sustainability initiatives in the next 3-5 years.

A positive outlook for economic growth of the country as well as for their own companies and sector sets apart Indian corporates from the ongoing macroeconomic sentiment. Using this optimism and positive growth prospects to drive a greater commitment towards sustainability initiatives is an opportunity at hand. Around 40% executives mentioned that a conducive policy environment for stimulating growth is only somewhat present, but not to an extent that their business needs at present, expecting a similar environment in the next three to five years.

As such, supportive policy will be crucial to channeling executives’ enthusiasm into the widespread adoption of sustainability initiatives. Mr Mathew supports this point, noting that policies should include effective provisions for non-performance for those who violate or don't comply with the set norms. However, he also highlights that leading organisations aren’t waiting for those policies to change before acting. “They [companies] can see the direction in which the wind is blowing, and they are preparing to take advantage of those headwinds or tailwinds.”