Over the last decade, regulators and corporations worldwide have adopted the ESG (Environmental, Social, and Governance) framework to assess an organization’s sustainability and risk management practices. The ESG framework takes a holistic view of an organization’s impact and recognizes that sustainability extends beyond environmental issues.

Environmental Factors in ESG

Environmental factors refer to an organization’s environmental impact and risk management practices. These include direct and indirect greenhouse gas emissions, natural resource management, and the firm’s resilience against physical climate risks like climate change, flooding, and fires

Social Factors in ESG

The social pillar of ESG refers to an organization’s relationships with stakeholders. It includes human capital management metrics such as fair wages and employee engagement, as well as an organization’s impact on the communities in which it operates.

Governance Factors in ESG

Corporate governance refers to how an organization is led and managed. ESG governance factors include leadership’s incentives and alignment with stakeholder expectations, shareholder rights, and internal controls to promote transparency and accountability.

ESG in India

India has long had laws and bodies regarding environmental, social, and governance issues, including the Environment Protection Act of 1986, the National Green Tribunal, labor codes, and laws governing employee engagement and corporate governance practices. Recently, the Securities and Exchange Board of India (SEBI) revised the annual Business Responsibility and Sustainability Report (BRSR) to include new disclosures ranging from greenhouse gas emissions to gender and social diversity.

Implications for Indian Companies

Compliance with ESG regulations of the US, UK, the European Union, and other regions will be critical if Indian companies want to take full advantage of the growing decoupling from China and play a more prominent role in global supply chains and the marketplace overall. Thorough due diligence, including looking at company records, interviewing former employees, and discreetly observing operations, is necessary for Indian companies looking to expand their ESG risk management. Companies that wish to maximize their opportunities in the global economy need to embrace these new requirements and adjust their organizations accordingly.

MCQs on The Growing Importance of ESG in Global Business Practices

  1. Which of the following is NOT a factor considered in the ESG framework?
    A. Financial performance
    B. Social impact
    C. Environmental impact
    D. Governance practices
    Correct Answer: A. Financial performance
    Explanation: The ESG framework considers environmental impact, social impact, and governance practices but not financial performance. The ESG framework is used to evaluate an organization’s sustainability and risk management practices.
  2. What does the social pillar of the ESG framework consider?
    A. Human capital management metrics
    B. Corporate governance practices
    C. Environmental impact
    D. Natural resource management
    Correct Answer: A. Human capital management metrics
    Explanation: The social pillar of the ESG framework considers an organization’s relationships with stakeholders and includes human capital management metrics such as fair wages and employee engagement, as well as an organization’s impact on the communities in which it operates.
  3. Which of the following is NOT a law or body that addresses ESG issues in India?
    A. Environment Protection Act
    B. National Green Tribunal
    C. Securities and Exchange Commission
    D. Labor codes
    Correct Answer: C. Securities and Exchange Commission
    Explanation: The essay mentions that India has long had laws and bodies regarding ESG issues, including the Environment Protection Act of 1986, the National Green Tribunal, labor codes, and laws governing employee engagement and corporate governance practices. However, the Securities and Exchange Commission is not a body that addresses ESG issues in India; rather, it is the Securities and Exchange Board of India that has recently revised the annual Business Responsibility and Sustainability Report.
  4. Why is compliance with ESG regulations of other regions critical for Indian companies?
    A. To decouple from China
    B. To operate responsibly and sustainably
    C. To maximize opportunities in the global economy
    D. To reduce greenhouse gas emissions
    Correct Answer: C. To maximize opportunities in the global economy
    Explanation: The essay states that compliance with ESG regulations of the US, UK, the European Union, and other regions will be critical if Indian companies want to take full advantage of the growing decoupling from China and play a more prominent role in global supply chains and the marketplace overall. Compliance with ESG regulations is essential for Indian companies looking to compete in the global marketplace and maximize their opportunities in the global economy.

Loading