While India is strong on ESG reporting, Small and Medium Enterprises (SMEs) are lagging behind. But SMEs should know that sustainability is one of the factors that drives business today. Today, the social goals of an organization run parallel to its profit making goals.
A joint report by Federation of Indian Chambers of Commerce & Industry (FICCI) and Boston Consulting Group (BCG) says that a significant 85% of Indian CXOs surveyed believe that ESG initiatives are essential or very important in driving HR strategies and aligning organizational culture with broader societal goals. Furthermore, 66% agree that environmental responsibility has become significantly more important in the past 1-2 years and are adapting to global and national ESG reporting standards.
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With its promises to become more environmentally friendly, India has been becoming conscious of its carbon footprint. As per a study conducted by DBS Bank in partnership with the Financial Times Longitude, Indian businesses are more likely than their regional peers to be engaged in ESG reporting and compliance (65% in India, compared with 62% in Singapore, 53% in Hong Kong and 41% in China). This aligns with the increase in stringency and rigour required from mandatory reporting and disclosure norms in the country.
Corporate India is starting to see the value that ESG reporting can bring in the long run. As per a survey report curated by Uniqus Consultech and IMA India on the state of ESG maturity within Corporate India, 75% of large Indian companies have set clear sustainability goals, with 84% voluntarily sharing their targets with nearly half of the companies deploying dedicated ESG teams.
61.3% of manufacturing companies expect to see measurable outcomes from their ESG initiatives in medium to long term, with 13.3% anticipating results in the very near term (0-1 years). Also, large companies reveal that their ESG strategies are fully integrated into their organizational strategies.
“Companies are not only recognizing the ethical and regulatory imperatives but are also seeing the financial benefits of sustainable practices. The willingness to leverage green finance and technology shows a proactive approach to overcoming ESG challenges.” — Suraj Saigal, IMA India’s Research Director
Adding on to it, Suraj Saigal, IMA India’s Research Director said, “Companies are not only recognizing the ethical and regulatory imperatives but are also seeing the financial benefits of sustainable practices. The willingness to leverage green finance and technology shows a proactive approach to overcoming ESG challenges.”
On the flipside, SMEs still have some road to cover. 25% of Indian companies, mostly SMEs, avoid ESG discussions in their Board of Directors meetings. Moreover, only 29% of companies report their ESG initiatives and seek stakeholder feedback.
Sustainability-related information enables better business for SMEs
SMEs have to understand the significance of sustainability today, because all stakeholders from investors to consumers are interested in companies with sustainability goals. According to a guide released by ACCA (Association of Chartered Certified Accountants,) sustainability-related information enables better business for SMEs.
Sundeep Jakahar, head of public affairs, India at ACCA says, “In India, where SMEs constitute a significant portion of the business landscape, the adoption of sustainability practices is crucial. SMEs in India face unique challenges such as limited access to resources and capital. However, sustainability reporting can unlock numerous benefits for them, including access to new markets and better financing opportunities. For Indian SMEs, this could mean improved competitiveness on a global scale, aligning with international standards and expectations.”
“SMEs in India face unique challenges such as limited access to resources and capital. However, sustainability reporting can unlock numerous benefits for them, including access to new markets and better financing opportunities.” — Sundeep Jakahar, head of public affairs, India at ACCA
As the demand for sustainability-related information increases, all organisations must be ready to provide information related to their approach and progress in managing sustainability-related risks and opportunities. This demand extends beyond the organisation to its value chain and comes from regulators, investors and many other stakeholders. SMEs are in scope because they comprise 90% of all organisations globally, and so are an essential part of the value chain.
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“The creation and use of sustainability-related information helps SMEs, their advisers and stakeholders to see and take advantage of their opportunities and manage their risks. This will put SMEs in a much stronger position financially – making it easier to attract investment and obtain preferential terms of trade with suppliers. In the battle for talent, it will help them recruit and retain high-calibre employees,” Report co-author Sharon Machado, head of sustainable business at ACCA says.
“The creation and use of sustainability-related information helps SMEs, their advisers and stakeholders to see and take advantage of their opportunities and manage their risks. This will put SMEs in a much stronger position financially – making it easier to attract investment and obtain preferential terms of trade with suppliers.” — Sharon Machado, head of sustainable business at ACCA
The enablers to better business that result from communicating and using sustainability-related information may help SMEs gain new competitive advantage.
“Although SMEs may consider these demands challenging, especially at times of significant financial pressure, evidence suggests the effort is justified.” — Aaron Saw, head of corporate reporting insights – financial at ACCA
Report co-author Aaron Saw, head of corporate reporting insights – financial at ACCA, says, “Although SMEs may consider these demands challenging, especially at times of significant financial pressure, evidence suggests the effort is justified.”
According to research, digital orientation and ESG orientation are complementary in their relationship to innovation performance and digitization and ESG promote corporate innovation, respectively. In the case of small enterprise size, the synergy between digital and ESG orientation can hinder innovation performance for a while, but in the long term, it will only benefit SMEs.
