The environmental, social, and governance (ESG) components for reporting have grown more complicated as a result of the global flux in regulatory requirements.
Over 700 legislation now require businesses to report on at least some aspects of sustainability, according to a UNPRI survey done across 90 countries, illustrating the severity of regulatory commitment to ESG.
Businesses that do not reach the criterion are rapidly integrating ESG practices and reporting methods into their strategy, even while listed companies are legally compelled to report on ESG measures. Startups should pay special attention to this area because ESG measures are crucial for investor scrutiny and decision-making. Two-thirds of institutional investors surveyed by Edelman who participated in the study said they wanted executive remuneration to be correlated with ESG performance.
Indian ESG Regulations
Business Responsibility Sustainability Reporting (BRSR) is one of India’s most advanced and comprehensive legislation when it comes to establishing a reporting framework for sustainability. For organisations to report in accordance with its nine principles, it supplies a comprehensive set of key performance indicators (KPIs).
However, since BRSR is only now becoming necessary, it is unclear how companies will set progressive sustainability targets and show how they have achieved them in their BRSR reports. In a similar vein, it is currently unknown how the regulator analysed the data that was presented.
For instance, the BRSR mandates the use of two years’ worth of data for clauses relating to environmental impact assessment, water and energy use, liquid discharge, air pollutants, and grievance redressal. For businesses to show gradual improvement over time across many dimensions, there are no particular requirements.
Ensuring Targeted ESG Disclosures
Companies must first set precise annual targets in order to make ESG disclosures more focused on reaching global sustainability goals. Setting sustainability goals requires considering them from a broad, sectoral perspective while also taking into account the nature of corporate operations and industry.
Boards must create measurements, clearly define their priorities in terms of environmental, governance, and social purposes. Their individual duties and responsibilities would dictate the weighting of the metrics for senior management executives. The easiest strategy to guarantee constant progress toward the goals would be to take a carrot-and-stick approach to these aims.
It will be ensured that sufficient thought is given to overall strategy, the dedication of personnel, and resources are dedicated to accomplishing these goals by tying executive pay to these aims, both in terms of annual bonuses and long-term incentive schemes. Companies could run pilots for the first few years to test the waters because there was no baseline.
As a result of CEO pay being linked to particular indicators, boards should be aware of the likelihood of underreporting and make plans to address these issues. It is also vital to take into account which indicators ought to be connected to annual bonuses and which ought to be connected to long-term incentive strategies. Boards must, above all, be flexible and open to adjust their strategies when necessary.
Startups Possess a Manifest Advantage
Regulatory control of executive pay has been a sensitive issue that has attracted tremendous criticism, despite the fact that some businesses have made progressive steps in this area. Therefore, there are no observable advantages or disadvantages to CEOs strategizing voluntarily on sustainability goals with anticipated outcomes within specified timelines.
The implementation of ESG reporting standards in India would benefit greatly from a government push in the form of recommendations that would tie CEO compensation to sustainability achievements.
Startups clearly outperform huge multinational corporations and established listed organisations in terms of technological capability. Furthermore, it will be simpler for startups to integrate sustainability concepts as best practices due to the comparably smaller organisation and supply chains.
