What has the ESG story been like from strategy to reporting? KPMG Presents The Blueprint 'Business in The New Normal' as part of KPMG ESG Conclave 2023. The theme for the event was Thought |Action| Impact.

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In a panel discussion moderated by Gautam Srinivasan, business leaders, eminent personalities from the investment community, and the enablement aspect gathered together to share their insights on this. Kalpana Morparia, Independent Director, and Dr. V S Parthasarathy, Independent Director joined to share their business leaders' perspectives considering their years of experience. Amit Tandon, Founder & MD at IIAS, and Rama Patel, Director at CRISIL shared the investment communities' views and Sai Venkateshwaran, Partner of KPMG in India provided the solutions outlook for this discussion.

The discussion was on topics like sustainability now moving from a nice-to-have to a must-have agenda in the boardroom. What's the thinking now in the boardrooms especially when considering sustainability and its importance as a long-term value-creation driver? Sharing her thoughts on this Kalpana said, "Sustainability from a nice-to-have has moved center stage. It's taken quite a while to get there but I would say it's absolutely core now, and every board discussion absolutely focuses on this across all of the three dimensions of environment, social impact, and governance."

How does sustainability work as a long-term value-creation driver? Dr. V. Parthasarathy said, "Firstly, even though it's a must-have, we have not moved on from integrated reporting to integrated operations. Secondly, our bane in the boardroom is the triple bottom line and because we say triple bottom line, we have created controversy for us. When you put People and Planet along with Profit, guess who wins? The profit always wins because that's more fungible and more visible. We move away from this concept, and instead have people and the planet as the end and process of profit and process of governance as the other two which come in to enable this. These are the kind of changes we need to create value.”

Speaking of profits, the conversation flowed into what the investor community's interests are when it comes to ESG issues. Do they really believe that a company that looks at ESG seriously is a great investment prospect in the long term? Sharing his thoughts Amit said, "As far as investors are concerned there's a very clear realization that ESG impacts each industry differently. Therefore, the big challenge for them is that there's a huge amount of data out there, but how do you get the comparability? There are certain themes that kind of run through the entire process. First, is there a recognition by investors that the risk-adjusted return for companies that are following ESG processes are going to be a little better than those who have given a short shift to sustainability and stewardship. The second factor is that the systemic risk is lower. By that, I mean that the volatility in terms of performance and, therefore, in terms of the stock performance is significantly lower. To sum up, investors realize both systemic risk and tail risk are lower for companies that kind of adhere to strong ESG principles."

Is ESG preference going to play a strong role for companies? Sharing her insights, Rama Patel said, "Several studies have been done in terms of what is the long-term sustainable return generation capabilities of ESG-conscious companies compared to their counterparts. Empirically on a long-term basis, there are studies that show that the performance of ESG-conscious companies has outpaced their peers. The concept of ESG is not something new. Yes, the acronym and focus are new. Over the last couple of years, we have seen the kind of supply-side disruptions that things have created for real companies. Investors have seen how it has impacted business performance. So, it would not be a far-reaching statement to say that very clearly sustainable practices are something that would gather focus in terms of what even companies are looking at. We are seeing even the ESG-focused funds growing and I think it is going to continue gathering pace."

Moving from the strategy to the reporting stage, the discussion flowed into how the reporting landscape is still very fragmented. So how should companies clearly articulate the key ESG work that they are doing? and how should they focus on what do and share and how to clear the path ahead in line with how the enterprise is moving? Sharing his thoughts Mr Sai said, "Companies are embracing ESG reporting and of course, there is the regulatory reporting that's coming in. But that's only addressing one little part of it. I think there is a lot that at least the more progressive companies are doing in terms of adopting various global frameworks together with independent assurance and looking at what is relevant in their context to communicate to their investors. However, one key element that we are missing in the Indian context is that companies still haven’t got to an integrated view to look at issues like impact of climate change on financial performance, both in the short and medium term."

Limited knowledge of ESG issues can be a big challenge. Companies still see ESG as an ancillary rather than a core part of their business function. However, this limited knowledge may just be a boon!

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: This is a partnered post