What is ESG?
The world is facing environmental challenges, social inequality and pressure for corporate accountability, and people are paying attention to how businesses operate beyond the bottom line. In this article, we'll explain what ESG means, how it is measured and why it's becoming important for businesses.
What does ESG stand for?
ESG stands for environmental, social and governance. It's a framework used to understand how well a business is managing its responsibilities to nature, people and stakeholders.
The environmental component covers how the business interacts with the natural world, including initiatives to reduce pollution, adopt sustainable practices and address climate change. Businesses that manage their environmental impact are better positioned to adapt to ecological risks and meet growing expectations from customers, regulators and investors.
The social component looks at how a company treats people. Issues like workplace diversity, human rights and employee wellbeing all fall under this pillar. These approaches help businesses build trust, boost morale and create a more engaged workforce.
The governance component refers to how the company is led and managed, covering board structure, ethical decision-making, and transparency. For companies listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), good governance is not just a best practice but a regulatory mandate. These entities must comply with SEBI’s LODR (Listing Obligations and Disclosure Requirements) Regulations and the Companies Act, 2013, which enforce strict oversight to prevent fraud and mismanagement. Under these frameworks, listed companies face higher stakes in maintaining credibility with stakeholders, as robust governance directly impacts their market valuation and ability to remain compliant with mandatory annual disclosures.
Overall, these three areas offer a more human-centered, data-driven view of what good, ethical business looks like.
What are the three pillars of ESG?
The three pillars of ESG are environmental, social and governance practices.
Environmental
Assessment of a company's ecological footprint and sustainability efforts. It covers how resources are used, what emissions are produced and how the business prepares for environmental risks. For example, companies may measure their energy usage, invest in renewable technologies or set carbon reduction targets aligned with India's Panchamrit commitments and Net Zero 2070 goal. Ultimately, it's about using resources efficiently, which helps businesses by reducing costs and future-proofing operations.
Social
Focuses on how a business affects people, including employees and the wider community. A business with strong social practices may implement fair hiring practices in accordance with Constitutional provisions on equality and non-discrimination, support employee wellbeing, give back to local communities or take a stand on social issues. Companies that do well here tend to attract more loyal staff, enjoy higher employee engagement and build stronger reputations, making them more resilient in India's competitive and rapidly growing market.
Governance
Centered around good leadership, accountability and ethical business management. It's how decisions are made at the top and whether those decisions are made in a responsible and transparent way. This includes having an independent board and maintaining strong financial and organizational controls to prevent fraud and mismanagement, ensuring compliance with SEBI's LODR Regulations and Companies Act, 2013 requirements. Even the most profitable business can be brought down by poor governance. Weak oversight, such as ignoring risks or allowing bad behavior, quickly erodes trust. Trust can be hard to win back.
What does ESG measure?
Whilst ESG is about doing the right thing, it also should be based on real data. Businesses are often asked to show how they perform across each of the three ESG areas.
Companies usually track quantitative and qualitative data, including numbers, practices and policies. For the environmental pillar, companies might track their carbon emissions, water use and waste management practices. In the social space, common metrics include diversity statistics, employee turnover rates and the number of workplace incidents. Governance can be measured through board composition, audit practices and how closely a company adheres to legal and ethical standards.
Capturing and reporting ESG data can be tricky. One major challenge is that there are different frameworks used across industries and regions. For Indian listed companies, SEBI's Business Responsibility and Sustainability Reporting (BRSR) framework provides clear guidance on what needs to be disclosed. It's also hard for smaller businesses that don't have big teams or budgets to collect all the data.
To make it easier, many organizations use well-known frameworks like the Global Reporting Initiative (GRI), United Nations Sustainable Development Goals (SDGs) and the Sustainability Accounting Standards Board (SASB). These tools help businesses determine what to report and how to track their progress.
Other best practices include setting clear goals, collecting the same types of data over time and being honest about accomplishments and challenges. It also helps to talk with stakeholders, like employees, investors and customers, to understand what issues matter most to them. Even though it can take time and effort, regular ESG reporting helps companies track how they're doing, stay transparent and earn trust from the people who matter. For the top 1,000 listed companies by market capitalization in India, BRSR reporting is mandatory and forms part of annual disclosure requirements.
Why is ESG important for Indian listed companies?
There are many reasons why ESG is becoming more important for business success. A strong ESG strategy helps businesses prepare for and respond to challenges that aren't just financial. Whether dealing with extreme weather like floods, cyclones or droughts, or staying out of legal trouble, it's a powerful tool for managing risk.
ESG also builds trust and strengthens reputation. Consumers and investors want to support brands that reflect their values. Companies known for being ethical, sustainable and socially responsible are more likely to earn loyal customers and attract funding to support growth. Strong ESG performance is also good for the bottom line. These businesses often run more efficiently, attract great employees and are better equipped to handle change or disruption.
Governments and regulators are also stepping in. SEBI has enhanced ESG reporting requirements through BRSR and BRSR Core, and the Ministry of Environment, Forest and Climate Change has introduced the Carbon Credit Trading Scheme. New rules around climate reporting, ethical sourcing and supply chain transparency are becoming more common. It's vital to stay ahead of these requirements. ESG matters when it comes to attracting and keeping talent. People want to work for companies that care about social and environmental issues, particularly important in India's competitive labor market where skilled professionals have multiple options.
Are ESG and CSR the same?
ESG and CSR are often mentioned together but are not the same. Corporate social responsibility (CSR) typically refers to a company's voluntary initiatives, such as charitable donations, volunteer programmes or community sponsorships. It's about giving back to the community. In India, Section 135 of the Companies Act, 2013 mandates CSR spending for qualifying companies, making it a distinctive feature of the Indian corporate landscape.
ESG, on the other hand, is broader and more structured. It's about integrating environmental, social and governance practices into the core of how a company operates, showing measurable results. CSR might involve fundraising for a local charity, whilst ESG might be embedding diversity and inclusion practices into hiring processes, tracking emissions and holding the board accountable to sustainability goals aligned with SEBI's BRSR requirements.
Workday provides HR software solutions to help you manage workforce policies, compliance and talent transitions seamlessly whilst supporting your organization's ESG goals and regulatory requirements in India.
Frequently asked questions
What is SEBI's BRSR framework and who needs to comply?
The Business Responsibility and Sustainability Reporting (BRSR) framework is SEBI's mandatory ESG disclosure requirement for listed companies in India. It requires the top 1,000 listed companies by market capitalisation to submit comprehensive ESG disclosures as part of their annual reports. The framework is built on nine principles from the National Guidelines on Responsible Business Conduct (NGRBC) and requires companies to respond to approximately 140 ESG parameters, including 98 essential indicators (mandatory) and 42 leadership indicators (voluntary). Additionally, SEBI has introduced value chain ESG disclosure requirements, asking companies to report on the sustainability practices of their major suppliers and customers.
How does ESG reporting in India differ from global standards?
India's BRSR framework has been designed to align with global ESG reporting standards like GRI, SASB and TCFD whilst addressing India-specific priorities. A key distinction is India's integration of the National Guidelines on Responsible Business Conduct principles, which incorporate issues particularly relevant to the Indian context such as inclusive growth, consumer protection and policy advocacy. India also has a unique mandatory CSR regime under Section 135 of the Companies Act, 2013, which requires qualifying companies to spend 2% of average net profits on CSR activities. This means Indian companies often report both CSR spending and broader ESG performance, whereas globally these are typically combined. The BRSR framework also places emphasis on value chain disclosures and requires companies to report on suppliers and customers, reflecting India's role in global supply chains.
What are India's key climate commitments that businesses should align with?
India's climate action is guided by the Panchamrit commitments announced at COP26, which businesses should consider when setting their own sustainability targets. These five pledges include reaching 500 GW of non-fossil fuel energy capacity by 2030, meeting 50% of energy requirements from renewable sources by 2030, reducing total projected carbon emissions by one billion tonnes by 2030, reducing carbon intensity of GDP by 45% from 2005 levels by 2030, and achieving net-zero emissions by 2070. For businesses, this translates into opportunities to invest in renewable energy procurement, set science-based emissions reduction targets, improve energy efficiency across operations, and explore green technologies.
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