New Delhi (India) July 26 : In the dynamic landscape of modern business, the realm of Environmental, Social, and Governance (ESG) considerations has transcended its conventional association solely with large corporations. Increasingly, it is mid-market enterprises, especially those with export aspirations, that are recognizing the indispensable significance of integrating ESG principles into their operations. While historically seen as optional, ESG is now an imperative facet of sustainable growth, resilience, and value creation for businesses of all sizes.
An recent report by Grant Thornton, unequivocally underscores this paradigm shift, asserting that ESG credentials have transformed from a ‘nice to have’ to a ‘must-have’ for much of the mid-market. This reflects the evolving expectations of stakeholders, including customers, supply chain partners, employees, investors, and potential acquirers. As mid-market companies embark on their journey towards international expansion, a robust ESG framework becomes not just a strategic advantage but a prerequisite for success.
The Imperative of ESG for Mid-Market Exporters
As mid-market companies foray into exports and embark on their journeys towards international expansion, a robust ESG framework becomes not just a strategic advantage but a prerequisite for success. The integration of ESG principles helps companies navigate diverse markets, enhance brand reputation, and attract ethical investors. Beyond altruism, businesses that prioritize sustainability, good governance, and social responsibility often reap substantial rewards, demonstrating that financial success and ESG commitment are not mutually exclusive concepts.
Resilience and Risk Management
Companies with strong ESG credentials tend to be more resilient in the face of disruptions, be they economic, environmental, or social. Such resilience translates into reduced operational risks, safeguarding continuity and preserving shareholder value. Moreover, consumer preferences are gravitating towards ethically minded brands, enhancing brand equity and customer loyalty for businesses that embrace ESG.
Regulatory Compliance and Market Access
With regulatory scrutiny intensifying, particularly concerning environmental practices and social impact, adherence to ESG standards mitigates regulatory risks and enhances market access. The Securities and Exchange Board of India (SEBI) has mandated the inclusion of new ESG metrics in the Business Responsibility and Sustainability Report (BRSR Core) for select listed companies, underscoring the growing importance of ESG compliance.
Challenges and Overcoming Them
Despite the clear benefits, the path to ESG adoption presents its own set of challenges for mid-market companies.
Limited View of ESG
Many mid-market companies perceive ESG solely as a compliance burden, overlooking its potential to enhance brand reputation, attract ethical investors, and improve operational efficiency. To address this, industry bodies, government agencies, and academic institutions can collaborate on targeted campaigns to educate mid-market companies on the business case for ESG. Success stories of Indian exporters leveraging ESG for market access can be powerful motivators.
Low Awareness of Best Practices
Developing simplified ESG frameworks tailored to the specific needs and resources of mid-market companies can make implementation more manageable. Creating online platforms for knowledge sharing and peer-to-peer learning can empower companies to learn from each other’s ESG journeys.
Skilled Talent Gap
The skilled talent gap further impedes effective strategy development and implementation. Initiatives to train consultants and advisors specializing in ESG for mid-market companies can bridge this gap.
Government Support
While SEBI’s BRSR mandate is a positive step, there’s a need for a more focused government push to build widespread ESG awareness and provide targeted support for mid-market companies. Financial incentives like tax breaks or subsidies for ESG-related investments can further incentivize adoption.
The Apparel and Textile Sector Of India: A Case in Point
The apparel and textile sector offers a compelling example of the importance of ESG integration. Global buyers are increasingly demanding strong ESG credentials from suppliers. Major fashion brands require adherence to labor standards and sustainable production practices. For Indian apparel exporters, compliance translates to a competitive advantage in the global market.
Steps to Integrate ESG into Mid-Market Companies
Identifying Stakeholder Priorities
The first step towards developing an informed ESG strategy entails identifying and prioritizing the issues that are significant to stakeholders. Whether it be customers, employees, investors, or local communities, understanding their expectations and concerns forms the bedrock of a robust ESG framework.
Building a Measurement Framework
Central to the success of any ESG strategy is the establishment of a robust reporting and measurement framework. By quantifying progress and outcomes, businesses can effectively track their performance against predefined goals and benchmarks, thereby enhancing accountability and transparency.
Taking an Intersectional Approach
Recognizing the interconnectedness of various ESG issues is paramount. Businesses must adopt an intersectional approach that addresses the root causes and interdependencies between environmental, social, and governance concerns, fostering holistic and sustainable outcomes.
Engaging the Supply Chain
The significance of supply chain engagement cannot be overstated. Mid-market companies must collaborate with suppliers and partners to propagate ESG principles throughout the value chain, thereby amplifying their collective impact and driving systemic change.
Integrating ESG Across the Business
ESG initiatives should permeate every facet of the organization, from strategic decision-making to day-to-day operations. By embedding ESG considerations into the corporate DNA, businesses can ensure alignment with overarching objectives and cultivate a culture of responsibility and accountability.
Leveraging the Power of People
Lastly, mid-market companies must recognize the inherent potential of their workforce in driving meaningful change. Empowering employees to champion ESG initiatives not only fosters a sense of purpose and belonging but also unlocks a reservoir of creativity and innovation.
By embracing ESG principles, mid-market Indian enterprises can unlock new opportunities for growth and expansion while contributing meaningfully to society and the planet. As the global economy evolves, ESG isn’t just a choice – it’s a strategic imperative for success. A multi-pronged approach involving government, industry bodies, and businesses themselves is crucial to navigate this transition towards a more sustainable future.
ABOUT THE AUTHOR
Jubin Mishra is a Partner at Blue Helion, bringing a wealth of experience as a Business Advisor and Strategy Consultant. As a partner at Blue Helion, Jubin acts as an advisor, mentor, and member of the CXO and Founder’s core teams and also helps define and operationalise the transformation agenda. Jubin Mishra is the author of Unmasking Startup Reality of Successful Employees: Why Some Entrepreneurial Dreams Remain Unfulfilled?
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