The term polycrisis is now a keyword of our times. This means that we live in an age where disparate economic, political, geopolitical, environmental, and social crises interact in such a way “that the overall impact far exceeds the sum of each part.” Last year, the World Economic Forum’s Global Risks Report pointed to the growing risk of polycrises and there may be no reversing this global phenomenon. Sustainable development is the only way forward to deal with the unprecedented environmental and health challenges, rising inequalities, and growing conflicts that the world faces today.
Certainly, India’s millennial and Gen Z consumers are with the times in that sense. Did you know that they are more environmentally conscious than their counterparts in developed markets like France, Germany, and the US? Or, that while they are more likely to buy sustainable products, they are also more distrustful of corporate sustainability claims?
These findings from Credit Suisse Research Institute’s Sustainable Consumer Survey of 2022 mean that no company can afford to ignore the importance of environment, social, and governance (ESG) practices in attracting India’s millennial and Gen-Zers and future- proofing their business.
So how can companies begin their ESG journey and align with India’s declared carbon goal to be net zero by 2070?
Many bigger corporates are already on this path – ESG reporting is mandatory for the top 1,000 listed Indian companies as per the Securities and Exchange Board of India’s norms. However, other companies can also contribute significantly to environment protection
and social development by focusing on key sustainability issues that are material to their businesses.
They can start by taking the following baby steps to reduce their carbon footprint and integrate ESG into their business strategies:
Choose green offices to lower environmental impact
One of India’s biggest polluters, accounting for about 22 of total emissions, is the buildings and construction sector. It is also one of the largest consumers of natural resources. Companies can lay the foundation for reducing their carbon footprint with a green office. Green buildings are energy efficient, consume less water, minimise waste, and decrease operational costs. They also tend to use net metering – offsetting thermal power from the grid with renewable rooftop power.
Responsible consumption and waste management
Even if a company is not housed in a green building, it can still reduce its environmental impact by reducing its energy and water consumption. Simple measures like switching from incandescent to LED bulbs, using energy-efficient air conditioners, recycling grey water, and eliminating plastic waste can go a long way. Besides, digitalisation is enabling many offices to go paperless. It’s also crucial to process the growing pile of e-waste in an environmentally responsible manner.
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Innovate sustainable products
ESG is not just about reducing the carbon footprint; it’s also about product innovation. For instance, there is a growing Indian market for electric vehicles and slow fashion (which is more sustainable than fast fashion). In the insurance sector, parametric insurance plans are emerging to provide cover for extreme climate events. Insurance companies are also incentivising customers to use wearables that can track key health parameters and thus help reduce mortality risks. Developing ESG-based products can be a smart business
strategy that allows companies to give back to their customers.
Focus on green investments
It’s not just consumers, investors are also questioning the ESG credentials of companies before investing in them. According to broking firm Avendus Capital, ESG-focused equity funds’ assets increased from USD330 million in 2019 to $1.3 billion by June 2023. As large institutional investors, some Indian life insurance companies have also launched green funds. Thus, companies with higher ESG scores can gain access to capital at
lower interest rates, which can help improve profitability and shareholder returns.
Integrate ESG into Enterprise Risk Management
The age of polycrises has shown us that ESG risks can no longer be seen in isolation. Within companies, too they must be integrated into the enterprise risk management framework so as to cover the entire value chain and all processes. For instance, in life insurance companies, ESG risks can eventually be linked to underwriting and priced into policy premiums.
Improve non-financial disclosures
Social and governance parameters are as important as environmental ones. As the recent advertising blitzkrieg on International Women’s Days showed, there is growing pressure on companies to improve gender diversity, inclusion and promote equality. Non-financial disclosures such as on employee benefits, compliance with the Prevention of Sexual Harassment Act, and redressal of customer complaints are also gaining importance and becoming mandatory.
Prioritise inclusive growth
Rising income disparities in a K-shaped economy pose social risks. In the life insurance sector, this means high coverage gaps. It also impacts customer trust. The accent is on inclusive growth today, as it evident from the insurance regulator’s thrust on ‘Insurance for All by 2047’ as well. This will help improve coverage of rural populations.
Overcome the data challenge
Data is the bedrock for – and hence the foremost challenge in – analysing and mitigating ESG risks. You need data to calculate the emissions you generate, your water and electricity consumption, identify the gaps that need plugging, and build ESG models. Without base data, how can a company set mitigation targets not just on emissions but even diversity, equality, and inclusion (DEI)? And how can it track its ESG performance without continuously capturing accurate data points? Data analytics will help companies gain visibility on their future ESG trajectory and performance.
Also Read | IndiaFirst Life Staying Ahead in Insurance, Navigates Risks with Innovation
This is also pertinent to the life insurance sector, where ESG risks are prominent across the value chain from product development until claim settlement. Unless a life insurance company builds the right data points to track these risks, its ability to develop innovative products and processes and embrace the evolving regulatory landscape may come under question.
The Fine Balance between growth and sustainability
As a developing economy, India is faced with a tough balancing act between its growth imperatives and net zero commitment. However, sustainability is non-negotiable with the planet at an inflection point today. A sustainable business model offers numerous benefits to all stakeholders. Hence, companies must make a start with small achievable goals that they can then build upon as ESG gains prominence within their organisation.
Views expressed by Amrish Maheshwari, Chief Risk Officer, IndiaFirst Life Insurance Company
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