Environmental, Social, and Governance
- March 13, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Environmental, Social, and Governance
Subject: Economy
Section: MSc
Context: Over the last decade, regulators and corporations around the world have embraced the idea that businesses should be measured not just on traditional economic metrics such as shareholder return, but also by their environmental impact, commitment to social issues and the soundness of their corporate governance and protection of shareholder rights.
Environmental, Social, and Governance:
- Environmental, Social, and Governance (ESG) goals are a set of standards for a company’s operations that force companies to follow better governance, ethical practices, environment-friendly measures and social responsibility.
- It focuses on non-financial factors as a metric for guiding investment decisions wherein increased financial returns is no longer the sole objective of investors.
- Investors use ESG criteria to assess a company’s risk profile and to identify opportunities for investment in companies that are well-managed and have a positive impact on society and the environment.
- ESG considerations are increasingly important to investors who are looking for long-term value and who are concerned about the impact of their investments on the world. Companies that score well on ESG criteria may also be more attractive to customers and employees who are concerned with sustainability and social responsibility.
- Environmental factors include a company’s impact on the environment, such as its carbon footprint, resource use, waste management, and pollution.
- Social factors include a company’s impact on people, such as its treatment of employees, customers, suppliers, and the communities in which it operates.
- Governance factors include a company’s management and oversight practices, such as its board composition, executive compensation, and transparency and accountability to shareholders.
ESG Regulations in India:
- India has long had a number of laws and bodies regarding environmental, social and governance issues. These include –
- Environment Protection Act of 1986
- Quasi-judicial organisations such as the National Green Tribunal
- Range of labour codes and laws governing employee engagement and corporate governance practices.
- Securities and Exchange Board of India (SEBI) substantially revised the annual Business Responsibility and Sustainability Report (BRSR) required by the 1,000 largest listed companies in India. The BRSR report demands sustainability reporting by listed entities with the intent towards having quantitative, qualitative and standardized disclosures on ESG parameters.
How ESG differs from CSR?
- ESG is a broader set of criteria that investors use to evaluate the sustainability and ethical impact of a company or organization’s ESG criteria include environmental, social, and governance factors that are considered alongside financial factors when making investment decisions.
- CSR, on the other hand, refers to a company’s voluntary actions and initiatives to improve its social and environmental impact, beyond what is required by law. CSR activities may include charitable donations, employee volunteer programs, reducing environmental impact, and promoting ethical business practices.
- CSR activities may align with ESG criteria, ESG is a more structured and systematic approach that focuses on evaluating a company’s overall sustainability and ethical impact.