As the human race paused to reconsider its priorities, ESG- the need for adoption of sustainable practices- emerged in top. The reset button got the entire ecosystem supporting ESG to converge.

In fact, the recently concluded COP26 in Glasgow, which brought together heads of state, climate experts and campaigners, spotlighted that climate change (E of ESG) has become a global priority and needs immediate attention. Adoption of various goals at COP26 and keeping 1.50 alive, stresses on scaling up action on dealing with climate impacts, which can only be delivered with concerted global efforts.

Therefore, in this reset, ESG indeed has emerged as a 'universal corporate priority across markets. Boards are now fully engaged, so are the C-suite executives. Strategic actions using double materiality and standard frameworks for reporting like demanded by BRSR in India and other regulatory pronouncements in the US and EU are being evaluated. Measurement of datasets that will underpin the 6 capitals-based reporting is being deployed at scale. The world is indeed on a rebound and in this new imperative Investor Relations Officers (IROs) have had to make ESG an immediate part of strategy.

In parallel, rapid progress and partnerships on a number of other fronts have added speed to ESG efforts. Value reporting foundation will converge reporting frameworks and the International Sustainability Standards board will set the basic principles that will make ESG reporting globally understood. Jamie Diamond, Paul Polson and the WEF have launched letters, books and matrices to scaffold the movement. The accounting profession is also pivoting to bring about this radical mindset shift. Investors and employees are sending out unmistakable signals that a non ESG soul enterprise will be shunned. China is in the race too!

All this action feeds into investment and divestment decisions of investors: sovereign funds, mutual and pension funds, HNWIs, Foundations, Universities and even lay investors. Supported by guidelines from exchanges and regulators, promoting ESG stories is essential for the business case.

The proactive adoption of ESG principles as a mark of Sustainability is changing the very definition of the investment case. The recent announcement of the RIL-ARAMCO transaction recasting is a case in point. Attention was focused on the evolving sustainability mindset in both these world class companies.

In light of the aforesaid, IROs can play a pivotal role in bridging the communication between companies, the investment community, all important stakeholders to effectively communicate the company's ESG ethos in a bespoke manner.

What should IROS do to bring meaning for Boards and the entire ecosystem on this crucial and evolving subject?

  1. Embed ESG in internal reporting frame work: IROS must integrate ESG into their storytelling, including technical metrics and reporting frameworks into tailored IR programmes addressing current and new investor concerns. It would be valuable to create a set of Netflix ready videos to show the work being done on the ground. It is also necessary to launch a series of talks to get the DNA of ESG deeply embedded in the organization's culture.
  2. Regular ESG related disclosures are provided to Exchanges to ensure that all stakeholders are kept abreast of the latest ESG developments
  3. Keep investors informed: IROS have to enforce and communicate new policies/decisions and ensure that the investment community is paying attention. It is also an opportunity to get ahead of current/future issues, control the narrative and ultimately, allow investors to make informed decisions.

Emphasis on ESG can help the market better understand the full scope of long-term value creation within the organisation, beyond financial materiality by focusing on environmental, human, brand and reputation, innovation and physical capitals. Soon an ESG rating by a reputed agency will become the big prize all responsible entities will aspire towards. At L&T Finance Holdings, we are already working on many of the above-mentioned steps, in our ESG journey. Net zero target setting and announcement of the year by which it will be achieved a race that can only get Planet Earth to the winning post.

IROS have to authentically convey the move towards circularity to Investors, incl. carbon capture, etc. Sequestration and usage must be actively pursued with credits bought to be ultimately redeemed, as a last resort maybe, all helping build a sustainable business case. In this collective global ambition, compromises on policy or commitments are unlikely to be permitted, after all we all are in this together.

Shailesh Haribhakti