India Inc is increasing sustainability investments significantly and tackling climate change has become a high priority for business leaders, reveal recent surveys among top business executives on climate change done by Deloitte and Infosys.
About 81% of the Indian CxOs say they have increased sustainability investments from the last year, with 27% saying that investments have risen ‘significantly,’ says Deloitte’s CXO Sustainability Survey 2023. This increase in investments could be attributed to the fact that 53% of Indian CXOs surveyed believe that climate change is likely to impact their companies’ strategies and operations to a “high/very high” degree over the next three years, observes the report.
Indian CxOs have ranked ‘climate change’ as a significantly higher priority, ahead of ‘economic outlook’ as compared to global executives, with 57% calling it a 'top three priority', compared to 42% of 2,000 plus global CxOs surveyed by Deloitte in 24 countries.
A 10-percentage point increase in Environmental, Social, and Governance (ESG) spending correlates with a one percentage point increase in profit growth and most companies realised positive financial returns from their ESG efforts, says a recent 'ESG Radar: ESG Redefined: From Compliance to Value Creation’ report brought out by Infosys, after surveying 2,500 business executives across industries in Australia-New Zealand, China, France, Germany, India, Nordics, North America, and the UK.
Nearly all (90%) executives from that global survey say their ESG spending led to moderate or significant financial returns and most respondents (66%) experienced ESG returns within three years. A company that currently spends 5% of its budget on ESG can expect a one percentage point profit increase if it aligns its operating or capital budget to increase ESG spending portion to 15%, finds the Infosys ESG report.
"But budgets for increasing investments in climate change are likely to be an obstacle for most companies in current economic scenario and outlook, as companies need more financial resources and operating model changes to achieve ESG goals and sustain the profit growth," Mohammed Rafee Tarafdar, chief technology officer, Infosys recently told Fortune India, while analysing the Infosys ESG report.
The Deloitte report says 60% of Indian CXOs rated a “just transition” to be extremely important to their organisation’s sustainability efforts, as compared to 46% of global executives. A 'just transition' seeks to ensure that substantial benefits of transitioning to a green economy are shared widely, while also supporting those who stand to lose economically—whether countries, regions, industries, communities, workers or consumers, explains Deloitte.
Indian organisations are feeling moderate to a high degree of pressure to act on climate change across various stakeholder groups, says the Deloitte report. Compared to the global average, Indian CxOs are likely to report feeling more stakeholder pressure to act from board members (78%), the government (72%) and shareholders (71%). Changing regulatory environment and employee activism have increased organisations’ sustainability actions over the past year in India. Indian CxOs are more likely to be focused on increasing the efficiency of energy use, using more sustainable materials, using more energy-efficient equipment, training employees, and making operations/supply chains more climate-resilient, in comparison with their global peers.
In line with global sentiments, Indian CxOs also see a brand reputation, addressing climate change, and innovation around offerings and operations as the top benefits of their current sustainability efforts. However, they feel the insufficient supply of sustainable or low-emissions inputs, lack of talent and expertise, costs, and difficulty measuring environmental impact as top barriers obstructing more climate action, finds the Deloitte survey.
“Despite the geopolitical and economic uncertainties, India Inc. is prioritising climate change and increasing investments towards sustainability. It’s promising to see that businesses in India understand the significance of a ‘just transition’ in protecting those who are most vulnerable to both climate change and job disruption. Having the right strategy to ensure a just transition would be critical going forward,” Viral Thakker, partner and sustainability leader, Deloitte India.
The Infosys report observes that overlooking the ‘S’ and ‘G’ in ESG reduces profitability. Many companies focus ESG efforts on the environmental segment with commitments to carbon neutrality, net zero, and reducing greenhouse gas emissions. However, there are also opportunities to improve financial results through social and governance initiatives.
It says companies perform better financially when they have a top ESG management like a chief diversity officer (CDO), chief sustainability officer (CSO), and ESG committee on the board, and also when the CSO clears capital expenditures for ESG initiatives. However, only about a quarter (27%) of those surveyed by Infosys say their company has all four components in place.
The supply chain is also a concern. Almost all companies are interested in aligning their ESG goals with their supply chain. However, less than one-third share ESG expectations or requirements for suppliers. Only 16% say they renegotiate contracts based on ESG data from those in the supply chain — indicating a clear need for more leadership in the supply chain and incentives to share ESG data, whether it’s meeting new contract requirements or making themselves more appealing to others in the supply chain, says the Infosys analysis.