We Must Bridge Our ‘Social’ Deficit in ESG Investments : Daily Current Affairs

Relevance: GS-2: Important Aspects of Governance, Transparency and Accountability

Key Phrases: Employment generation, Environment, Social, and Governance (ESG), Business Responsibility and Sustainability Report (BRSR), Securities and Exchange Board of India (SEBI), Stakeholder capitalism, Indian investment trends.

Context

Employment generation is one of the biggest challenges in India, especially in the wake of a global economic downturn.

Creation of Quality jobs:

As one step forward, Prime Minister recently announced a mega employment push to create 1 million jobs in the government.
This is a welcome step, considering that there are approximately 8,90,000 vacant posts in Ministries and Departments at the Centre.
Furthermore, recruiting 45,000 youth annually in the armed forces for a limited period may also help in generating employment.
There is a need for a similar push in the private sector and companies can do that by recruiting apprentices on a short-term basis. In both cases, long-term employment is also possible.
The objective should not just be the creation of jobs, but also ensuring that the new jobs are “Good and better”.
This would require a sustained effort to create an enabling environment that can accommodate such a large workforce and generate conditions for quality jobs in the economy.
A strong Environment, Social, and Governance (ESG) proposition has the potential to create that.

What is the Environmental, Social and Governance (ESG) of an enterprise?

Environmental:
- Environmental is all about an enterprise focus and action leadership around energy usage, waste management, and natural resources conservation.
- It also encompasses carbon emissions, climate change and going green.
Social:
- Social deals with an enterprise’s relationship and reputation with its employees, customers, stakeholders, institutions and the larger community.
- It is also about employee retention, labour relations, diversity, and inclusion.
Governance:
- Governance is all about how an enterprise manages with the proper management structure, executive compensation and ensuring stakeholder rights, especially employees, shareholders and customers.
- It also includes systems and networks in giving back to the community where it is operational.

The rise of ESG in India:

An approach to job creation that goes with socially responsible investments has created a paradigm shift in investor interests across the globe.
ESG disclosures are a crucial ally of this change as it offers multifaceted insights into corporate value chains, allowing investors to evaluate the sustainability of their investment opportunities.
Now businesses need to make a sustained effort to ensure that their profits are not at the cost of a negative environmental or social impact.
As per a circular issued by the Securities and Exchange Board of India (SEBI), a Business Responsibility and Sustainability Report (BRSR) has been made mandatorily applicable to the country’s top 1,000 listed companies for 2022-23.
It is for the first time that ESG compliance reporting has become mandatory in India.
It will help standardise disclosures and ascertain companies’ credibility, encouraging investors to hone their investment decisions.

The missing ‘S’ in ESG investments:

While ESG commitments have three pillars, the social pillar is typically missing in reforms.
SEBI recently constituted an advisory committee on ESG. While it focuses on the enhancement of BRSR, it also proposes developing a parallel approach for employment generation through a stronger ‘S’ factor.
The parameter aims to look at an enterprise’s relationship and reputation with stakeholders inside and outside a company and also gives an insight into workers’ welfare.
According to CNBC, in 2020 investors in the US who used ESG factors focused on the environmental criterion for their decisions.
The same trend was recorded in 2021 in India, where climate tech was the most popular sector of investment as stated by an Impact Investors Council report on Indian investment trends.
One of the main reasons for minor attention to the ‘S’ factor is that social impact is more difficult to quantify.
A report presented by BNP Paribas in 2021 based on a global ESG survey noted “an acute lack of standardisation around social metrics”.
Consequently, investors “check the box” concerning the social performance of a company as they do not display proper data to evaluate it. Therefore, it is urgent to create a framework with standardised metrics to assess it.

The work culture makeover:

Supporting the social dimension of a company requires a work culture transformation.
Workers should not be considered a cost burden, but a part of human capital formation, a vital factor of production.
The ‘stakeholder capitalism’ orientation will offer everyone fairer and equitable treatment and should be part of the corporate strategy and vision.
Such a vision for a new work culture can help stem talent losses arising from the Great Reshuffle.
Professionals from diverse backgrounds tend to seek job changes for better salaries, career paths, and a work-life balance.
- According to a LinkedIn survey, 82% of Indian employees considered changing occupations in 2022.
- Another study led by Amazon in 2021 showed that almost 70% of job-seeking adults wanted to switch industries.
Fixing the ‘S’ would help reduce the attrition rate in a company.

Conclusion:

We need to create an ESG culture, an ecosystem where all policies are primarily driven by a sustainable and socially responsible way of conducting a business.
It cannot be an individual’s responsibility to make this change; it is for all stakeholders to ally for a better tomorrow.
For this, investors need to take centre stage and support the adoption of sustainable welfare-enhancing policies by business ventures they put money into.
Focusing on human capital formation and skilling along with strengthening safety measures and equal opportunity is one of many ways to address the missing ‘S’ of ESG that has been overshadowed by Environment and Governance concerns.
The top ESG issue for India should be its workers. There is already a push from external factors on matters of Environment and Governance.
Stakeholders must now direct attention toward social issues.It will help create a more inclusive and sustainable model of economic growth where profit and welfare co-exist as organizational goals.

Source: Live Mint

Mains Question:

Q. Environmental, Social and Governance (ESG) have the potential to provide gainful employment to a large number of people and may act as a game changer for the economy. Discuss.