ESG REGULATIONS: SHAPING THE FUTURE OF CORPORATE

GOVERNANCE

INTRODUCTION

During rampant growth and rapid industrialization, the primary concerns of businesses have
been optimising profits and making the best use of available resources. However, unchecked
growth and rapid industrialization have led to problems with sustainability and posed huge
risks of environmental damage. The 21 st century has ushered in an era where corporate
culture has been forced to adopt long-term sustainable practices by state pressure and
stakeholder interference. The result has been the integration of Corporate Social
Responsibility which is measured on the ESG- Environmental, Social, and Governance
aspects. The ESG framework provides an overview of how an organization manages its risks
and opportunities concerning these factors. The thought behind this framework is that
sustainability is not just about the environment but way about it. The world's largest asset
managers like Vanguard and State Street have started implementing Sustainable Investing via
exclusionary and best-in-class practices. The former practice eliminates companies that are
deemed environmentally objectionable while the latter incentivizes ESG-compliant
companies by prioritizing them.i

MEANING OF ESG IN THE PRESENT DILEMMA

Environmental, Social, and Governance is referred to as ESG. It is a framework for

evaluating how open and responsible an organization's governance is, as well as how a
corporation or organisation affects society and the environment. ESG factors are becoming
more crucial than ever when assessing business performance, long-term sustainability, and
investment prospects.

EXPLORING THE PILLARS OF RESPONSIBLE FINANCE

ESG is not just a mere term or benchmark of sustainability for companies these days instead
it has emerged as a carrier of diverse connotations of brand image and investment portfolios.
The term “E” or “environment” majorly deals with a company’s policies concerning the
environmental harm and damage it contributes to in comparison to the steps it takes to
mitigate the harm caused as well as adopt sustainable practices. This extends to the
management's use of natural resources and the overarching plan it employs to address the
more serious threats posed by flooding, wildfires, and global warming. Apple has emerged as
a herald of hope With its pledge to run all of its worldwide operations entirely on renewable
energy.ii

The word "social," which serves as a link between the business and its stakeholders, is the
second pillar of the "S" acronym. It is also concerned with issues of internal management like
employee engagement, social benefits, and human capital management. Further, it also charts
the company’s activities' impact on the communities through and within which it operates.
The main contextual point is to ensure that the company does not merely operate as a profit-
making organization but also has a social standing that connects it to the society within which
it functions. Starbucks made headlines for its employee welfare programs through support iii
and skill training facilities.

The “G” might be the last factor, but it is never the least important as it denotes “governance”
and deals with the management and working of an organization. It deals with power and
agency dynamics within the company as well as their impact on the distribution of rights and
responsibilities. It also covers how the system of checks and balances, which encourages
leadership responsibility and openness in the decision-making process, and stakeholder
expectations are taken into consideration by the Board of Directors. The main objective is to
retain financial sustainability while respecting strong governance standards and moral
business conduct.

IMPACT ON CORPORATE PERFORMANCE AND VALUATION

ESG is not merely a component of Corporate Governance but also a measure of corporate
performance and valuation on the financial end. Sustainable measures have been beneficial
for Unilever. The company's Sustainable Living Plan has improved resilience and long-term
shareholder value, while also cultivating customer brand loyalty. Several businesses have
transitioned from conventional corporate governance methods to strategic corporate
governance, which aids in finding the ideal balance between shareholder profit maximisation
and stakeholder participation. Sustainable methods have also significantly reduced both
operational risks and costs as well as drawn conscious consumers as well as attracted
sustainable investing. This trend is also showcased in Tesla’s strong market growth which has
its roots in long-term sustainable commitment and ESG-driven innovation as in its electric
vehicles that resonate with societal as well as current demands. The example highlights how
sustainable investing is the new norm and companies must adapt to these market shifts to
gain an edge in market valuation and investments.iv
SUGGESTIONS FOR ESG REGULATIONS

To enhance the adoption of ESG in India, there is a need for businesses, financiers, and
governments to have a greater understanding of the significance of ESG elements in
sustainable and ethical investing practices. Indian corporations should give more thorough
and consistent disclosures on ESG concerns to let investors better evaluate companies' ESG
performance. The regulatory framework in India should be enhanced to encourage more ESG
compliance by businesses. This might include imposing stricter reporting requirements,
defining clearer ESG standards, and enforcing rules more thoroughly. Nevertheless, there are
obstacles to adopting ESG principles, including data quality issues, greenwashing, and a lack
of standardisation. Firms, investors, and regulators must enhance awareness and impose
stricter reporting standards to promote the adoption of ESG in India.

CONCLUSION

Guidelines and rules surrounding the realm of ESG might not be stringent and well laid for
now but jurisdictions across the world are moving towards strict implementation of these
norms to tackle globally prevailing problems. The Corporate Sustainability Reporting
Directive proposed by the European Union is reflective of the fact that standardized
disclosures with enhanced transparency would soon be put in place. v Further, global chain
companies like Walmart have committed to net zero emissions by 2040 which signifies the
shift that other organizations would also have to make in response to regulatory measures and
consumer preferences.vi ESG and its impact on corporate valuation are intersectional topics
that must be moulded through stakeholder preferences, investor perceptions, and evolving
market dynamics. Sustainable value creation should be the end goal by integration of diverse
practices driven by ESG innovation which would then lead to shareholder profitability and
long-term financial success.
i
Weil, https://governance.weil.com/insights/the-big-three-esg-a-guide-to-blackrock-state-street-
vanguard-proxy-voting-policies-guidance-on-key-esg-issues-2/ (Last Visited on 16th September)
ii
The Deccan Herald, https://www.deccanherald.com/technology/apple-doubles-down-on-
investment-in-renewable-energy-and-clean-water-2982509 (Last Visited on 16th September)
iii
Talent Institute Management, https://www.tmi.org/blogs/inside-starbucks-a-case-study-on-
talent-management (Last Visited on 16th September)
iv
Harvard Business Review, https://hbr.org/2020/02/lessons-from-teslas-approach-to-innovation
(Last Visited on 16th September)
v
Normative, https://normative.io/insight/csrd-explained/ (Last visited on 16th September)
vi
GreenBiz, https://trellis.net/article/walmart-aiming-zero-emissions-2040-how-will-it-get-there/
(Last Visited on 16th September0