Gap in ESG Readiness Highlights Challenges Faced by Businesses in Meeting Environmental, Social, and Governance Standards
According to the recent ESG preparedness survey conducted by Deloitte India, only 27 percent of Indian organizations feel adequately equipped to meet their environmental, social, and governance (ESG) strategy and compliance requirements.
The survey, which involved 150 organizations, assessed their readiness for ESG policies, regulations, disclosures, and compliances.
The results highlight the challenges faced by Indian businesses in bridging the gap between their commitment to ESG principles and their preparedness to take action.
Of the surveyed organizations, a mere 15 percent believe their suppliers are prepared to comply with their ESG requirements, emphasizing the need for collective effort across the supply chain.
The Consumer industry was found to have the lowest level of preparedness, with only 7 percent of organizations indicating robust readiness for ESG requirements.
However, the Energy, Resources, and Industrials, Financial Services, and Life Sciences and Health Care industries showed promise, with nearly 80 percent of organizations in these sectors categorized as either well-prepared or moderately prepared.
Viral Thakker, Partner and Sustainability leader at Deloitte India, highlighted the mounting pressure from various stakeholders on organizations to comply with ESG expectations. He emphasized the need to account for emerging global regulations on sustainable finance, climate disclosures, biodiversity, and social and governance dimensions.
Thakker emphasized that embedding a robust ESG culture into operations can lead to better top-line growth, cost reductions, increased productivity, and improved investment quality.
The survey also revealed the challenges faced by organizations in building ESG preparedness. Evolving ESG regulations were cited as a major hurdle by 65 percent of businesses, followed by the existence of multiple ESG frameworks, as indicated by 62 percent of organizations. Over 75 percent of respondents agreed on the need to simplify ESG compliance and enhance reporting procedures.
The report demonstrated the rising significance of ESG in India, with 88 percent of organizations perceiving sustainability regulations as directly impacting their businesses.
ESG has become an important agenda in boardrooms for over 75 percent of organizations, and 90 percent believe ESG reporting can improve brand reputation. Socially conscious investors are holding businesses accountable for their ESG actions, with 75 percent of organizations stating that their investors rate their ESG performance.
While commitment to ESG is evident, the journey from commitment to action is still underway for India Inc. Less than half of the surveyed organizations reported a thorough understanding of ESG reporting mechanisms and regulations in India, highlighting the need for urgent attention. However, 68 percent of organizations have made significant progress by formally integrating ESG strategies into their operations. The report also emphasized the importance of internal ESG leadership, with room for improvement in this area.
In terms of ESG reporting, 80 percent of organizations actively report their ESG efforts through various channels, with sustainability reports leading the way. The pressing concern of climate change is acknowledged by 83 percent of organizations at the boardroom level, but achieving net-zero targets poses challenges related to supply-chain emissions management and costs associated with adopting net-zero technologies.
On the social front, organizations allocate investments toward community welfare programs, but readiness to meet expectations around inclusion, diversity, and equity falls short. Only 25 percent of organizations consider themselves well-prepared in this regard. In terms of governance, only 15 percent view themselves as industry leaders in governance policies. Stakeholders demand more ESG reporting and transparency, and the majority of organizations have appropriate governance structures overseeing ESG-related matters.
The survey highlights the need for Indian organizations to bridge the gap between their commitment to ESG principles and their preparedness to meet ESG requirements. Simplifying compliance, enhancing reporting procedures, and improving internal ESG leadership are crucial steps toward realizing the benefits of a robust ESG culture, including top-line growth, cost reductions, and improved brand reputation.
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