News & Analysis

Deloitte Survey Calls out India’s ESG Position

The survey says only 27% of the companies are prepared while just 15% believe that their suppliers are even prepared to comply with ESG regulations

A survey by Deloitte is sure to raise questions over the significant gap in India’s commitments to ESG principles and its preparedness and action. The survey says only 27% companies are equipped to meet their ESG compliance requirements while just 15% think their suppliers are ready to comply with the commitments. 

The survey conducted by Deloitte Touche Tohmatsu India LLP (Deloitte India) was rolled out to 150 organizations to assess their readiness for ESG requirements (policies, regulations, disclosures, and compliances) and evaluate their ESG strategies and efforts. 

“Organizations are grappling with evolving expectations on ESG compliance and disclosure from investors, boards, governments, and consumers. They need to account for emerging global regulations on sustainable finance, climate disclosures, biodiversity, and social and governance dimensions, including gender diversity and living wages, within a couple of years,” Viral Thakker, partner and sustainability leader, Deloitte India, said in a company statement. 

Over 70 percent of the respondents are listed companies

The respondent pool included Chief Executive Officers (CEOs), Chief Financial Officers (CFOs), Chief Sustainability Officers (CSOs), heads of Corporate Social Responsibility (CSR), and management and operations executives. Over 70 percent of these organizations are also listed on the Indian stock exchanges.

Thakker said a robust ESG culture will translate into better top-line growth, cost reductions, reduced compliance burden, increased productivity, better investment quality and asset optimisation. “ESG is a significant value driver and embedding it into an enterprise’s operations is a key differentiator.”

Consumer industry is the worst, energy the best

From a sector-specific perspective, the Consumer industry was found to lag, with only 7 per cent organizations indicating robust preparedness for ESG requirements. On a brighter note, nearly 80 percent of organizations in the Energy, Resources, and Industrials (ER&I), Financial Services, and Life Sciences and Health Care industries (LSHC) were categorized as either well-prepared or moderately prepared to meet ESG requirements.

With respect to the challenges, 65% surveyed businesses highlighted evolving ESG regulations as a major hurdle in building ESG preparedness, followed by the existence of multiple ESG frameworks, as indicated by 62% organizations. Seventy five percent organizations expressed the need to simplify ESG compliance and enhance ESG reporting procedures.

However, there is also something to cheer about

The survey report offers an optimistic view of the rising significance of ESG in India. Almost 88 percent organizations see a direct impact of sustainability regulations on their businesses. Over 75 percent, concurred that ESG has become an important boardroom agenda, while 90 percent believed ESG reporting would benefit the business by improving brand reputation.

It also said socially conscious investors are holding businesses accountable for ESG actions. Almost 75 percent organizations stated that their investors rate their ESG performance. As indicated by 71 percent organizations, voluntary participation in ESG ratings is also a growing trend. Interestingly, 60 percent organizations are prioritizing establishing ambitious ESG goals for the future, pointing towards a positive trajectory for ESG integration in India Inc.

And how is the commitment to action on ESG shaping up?

The report finds that while the commitments are resolute, the journey to action is still a work-in-progress across India with only 49 percent reporting a thorough understanding of ESG reporting mechanisms. However, 68 percent have made progress by formally integrating ESG strategies and mechanisms into their operations. 

Although 83 percent organizations have designated sustainability leaders, only one-third have both internal ESG champions and sustainability leaders, indicating room for enhancing internal ESG leadership. 

On ESG reporting, 80 percent organizations actively report their ESG efforts, with sustainability reports leading the way (81 percent), followed by ESG reports (50 percent), and Business Responsibility and Sustainability Report (BRSR) and integrated reports (44 percent). Nearly 75 percent cited that they communicate ESG efforts through awareness programmes (85 percent), followed by annual meetings (76 percent) and investor decks (50 percent). 

ESG concerns have reached boardrooms 

On the environmental front, 83 percent of companies have acknowledged the pressing concern of climate change at the boardroom level. Also, more than 80 percent organizations highlighted that they have time-bound public commitments to address issues related to the environment. However, the journey towards achieving net-zero targets appears challenging, with 78 percent participants identifying supply-chain emissions management and 63 percent indicating costs associated with adopting net-zero technologies as potential hurdles.

In the social sphere, over 90 percent of organizations allocated a part of their investments towards community welfare programmes. However, the readiness to meet escalating public, investor, and government expectations around inclusion, diversity, and equity is less than optimal. Only 25 percent organizations consider themselves to be well prepared in this regard, with the rest being moderately prepared (45 percent) or somewhat prepared (29 percent).

Furthermore, only 27 percent organizations have considered themselves to be industry leaders in employee welfare, with the rest being adequate (53 percent) or below adequate (20 percent). 

In terms of governance, a mere 15 percent of organizations view themselves to be industry leaders in governance policies for issues such as board diversity, executive compensation, and management ownership. Half of the surveyed organizations indicated a demand from stakeholders for more ESG reporting and transparency, and nearly 75 percent organizations agreed that the board has an appropriate governance structure to oversee the organization’s ESG-related matters. Additionally, more than 50 percent organizations agreed that the company has formal ESG-linked performance incentives.

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