Introduction
As the implications of a changing climate become more apparent and the imperatives of responsible living become more pronounced, it is evident that the recent years have witnessed an unprecedented surge in global momentum towards sustainability.
While the relations between the U.S. and China have deteriorated sharply over various geo-political issues, this has not stopped cooperation between the world’s two biggest emitters of greenhouse gases to jointly commit to addressing the emission of methane and greenhouse gases in mid-November 2023. This is considered vital to the success of the U.N. climate talks in Dubai beginning in early December 2023.
In May 2021, the Securities & Exchange Board of India (SEBI) mandated the top 1000 listed companies to follow the Business Responsibility and Sustainability Report (BRSR). Barely two years later, in July 2023, SEBI mandated significantly more comprehensive reporting guidelines.
The sustainability space is witnessing many encouraging developments. Amidst these developments, it is a valid question to ask if governments and regulators across the globe have done enough. However, it is equally pertinent to ask if businesses have done enough.
Are businesses shying away from embracing their responsibility towards ensuring sustainability? Can sustainability become a key differentiator for companies?
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What is Sustainability?
In business, sustainability entails conducting operations without adverse effects on the environment, community, or society. Sustainable businesses consider various environmental, economic, and social factors while making decisions. These companies actively assess the repercussions of their activities, aiming to prevent short-term gains for businesses from translating into long-term drawbacks for society.
Core Purpose of Business and Externality
For much of modern industrial history, businesses have often focused on short-term gains, largely overlooking the long-term consequences of their actions on the environment and society. The primary purpose of business is often perceived as maximising profits and ensuring financial success.
One significant factor contributing to this negligence is the concept of “externality.” Externalities are essentially the consequences of economic activities that are not reflected in the cost of production or the price of goods and services. In pursuit of profit, businesses frequently disregard the broader impact of their operations, considering environmental and social costs as externalities to be borne by society at large. This short-sighted approach led to practices that depleted natural resources, polluted the environment, and exploited communities without accountability. However, as the world grapples with the escalating challenges of climate change and social inequality, there is a growing awareness that externalities can no longer be ignored.
Greenwashing
To project themselves as sustainable, many companies want to appear better than they actually are by adopting deceitful practices called greenwashing. Companies falsely present themselves as environment friendly or socially responsible to attract eco-conscious consumers, particularly Gen Z. These companies exaggerate or manipulate their environmental efforts, making misleading or untrue claims. By doing so, they create a facade of sustainability without implementing substantial changes in their practices.
Companies that engage in greenwashing are, at best, myopic as they prioritise short-term gains over long-term sustainability. While they might experience initial financial benefits and positive public relations, their lack of genuine commitment to environmental responsibility can lead to serious negative consequences. This includes eroding consumer trust when the truth is discovered, undermining truly eco-friendly businesses by creating unfair competition, and facing potential legal implications due to deceptive marketing practices.
Triple Bottom line
While many believe in the idea of Triple Bottom Line (TBL), which is rooted in the belief that businesses should be held accountable not only for financial success but also for their impact on people and the planet, others believe implementing TBL is a zero-sum game. For instance, one may argue that if a company focuses on people and the planet, it would be at the cost of profits.
However, it is essential to recognise that the TBL is not inherently a zero-sum game for businesses, where gains or losses from focusing on one component will precisely offset the losses or gains from the other. In the context of TBL, businesses can work towards a scenario where they can simultaneously benefit economically, socially, and environmentally. While challenges and trade-offs may exist in implementing TBL, balancing these aspects can create value in multiple dimensions, leading to long-term sustainability and prosperity.
The Changing Business Landscape and Green Consumers
The contemporary business landscape is undergoing a profound transformation driven by the emergence of green consumers, green employees, and an increasing prevalence of green business practices. Green consumers, who are discerning and environmentally conscious, are reshaping market dynamics by favouring sustainable products and services. This trend is compelling businesses to adopt eco-friendly practices to meet the evolving demands of their customer base. Simultaneously, green employees, driven to align personal values with workplace ethos, seek employers committed to environmental stewardship. This has led to a paradigm shift in workplace cultures, pushing companies to integrate sustainability into their core values to attract and retain top talent. This transformative trio – green consumers, green employees, and green business practices – is steering the corporate world towards a more environmentally conscious, socially responsible, and economically sustainable future.
According to a report by Bain & Co. published in June 2022, at least 60% of Indian consumers are willing to pay a premium for sustainable products and 43% rank sustainability as one of the top-five key purchasing criteria. The report further argued that consumers are not acting on a latent demand for sustainability products or the typical ‘say-do’ gap, where there is a discrepancy between what the consumers say and what they really do in practice. This presents the biggest opportunity for consumer companies.
Green Investments
Investors are increasingly asserting their commitment to sustainability by demanding that companies prioritise environmental, social, and governance (ESG) considerations. This shift in investor behaviour reflects a growing recognition that sustainable business practices are not only ethical but also integral to long-term financial success. The demand for transparency and comprehensive reporting on sustainability metrics has risen as investors seek to align their portfolios with companies that demonstrate a commitment to ethical and sustainable practices. This push for sustainability is not merely a moral imperative but is motivated by an understanding that businesses resilient to ESG risks and capable of creating positive societal and environmental impacts are better positioned for enduring success in an increasingly conscious and interconnected global economy.
The Government of India issued Sovereign Green Bonds for Rs. 8,000 crore in January 2023 at a greenium. Greenium refers to the discount enjoyed by the issuers compared to the non-green bonds. Further, there is a growing interest in sustainable index investing (S&P BSE 100 ESG index), where investors in India are looking to align their portfolios with benchmarks that include companies meeting high ESG standards. Likewise, institutional investors, including mutual funds and pension funds in India, are increasingly integrating ESG factors into their investment strategies.
Regulatory Perspective
In India, regulatory bodies are playing a pivotal role in propelling sustainability to the forefront of corporate agendas. Entities like SEBI have been instrumental in promoting sustainable practices through various initiatives. The introduction of stewardship codes, which outline principles for responsible ownership, encourages institutional investors to actively engage with companies on ESG matters.
SEBI had mandated a Business Responsibility Report (BRR) for listed companies in 2012 and modified it in 2015. Subsequently, BRSR 2021 replaced BRR and focused on quantitative and standardised disclosures on ESG parameters to enable comparability. BRSR was mandatory for the top 1000 listed companies (in terms of market capitalisation) from F.Y. 2022-2023. In July 2023, SEBI further modified the BRSR reporting to include BRSR Core, which requires comprehensive reporting on Key Performance Indicators under various ESG attributes and includes disclosures and assurance for the value chain of the listed companies.
As sustainability becomes increasingly integrated into regulatory frameworks, companies are compelled to adopt ESG-compliant practices, reinforcing that sustainable business practices are not just a choice but also a regulatory imperative.
Could Sustainability Be a Key Strategic Differentiator for Businesses?
In the modern business landscape, sustainability has transcended its traditional role as a corporate responsibility and emerged as a pivotal cornerstone of differentiation strategy. Companies that actively embrace sustainability champion environmental stewardship and cater to the preferences of the increasingly influential Green and Gen Z consumer segments. Recognising that these conscientious consumers are not merely seeking products but purpose-driven partnerships, businesses strategically align themselves with sustainable practices to carve a distinctive identity in the market.
Simultaneously, as green investors scrutinise companies for their commitment to ethical and sustainable operations, integrating sustainability into business strategies becomes a prudent move. Notably, the paradigm has shifted; sustainability is no longer viewed as a restrictive action but an enabler of innovation, efficiency, and resilience. Beyond ethical considerations, embracing sustainability is now a matter of enlightened self-interest. Companies that proactively engage in sustainable practices are not just contributing to the greater good; they are securing their own longevity, attracting a loyal customer base, improving their reputation and brand value, and positioning themselves as leaders in a world where responsible business is the key to enduring success.
References
- Mint (2022). “Over 60% willing to spend more on sustainable brands”, 3 June.
- Robert Brinkmann (2021). “Introduction to Sustainability”, Wiley Blackwell.
- Securities & Exchange Board of India Circular, “SEBI/HO/CFD/CFD-PoD-1/P//CIR/2023/123”, 13 July 2023.
- Tensie Whelan and Carly Fink, (2016). “The Comprehensive Business Case for Sustainability”, Harvard Business Review,
- The Washington Post (2023) “In a breakthrough, U.S. and China agree to restart climate talks”, 15 November .
- World Bank blogs (2023). “India incorporates green bonds into its climate finance strategy”, 12 June