CSR Is Not The Same As ESG : Dr Mukund Rajan

In an interaction with Urvi Shrivastav, Editorial Lead BW ESG, BW Businessworld; Dr Mukund Rajan, Chairperson ECube Advisory Pvt Ltd, speaks about the ESG (Environment,Social, and Governance) trends in India today, and his journey of becoming a pioneer in this field.

You have been a proponent of ESG from the very beginning of your career, from your initial days in the TATA group to the founder of ECube Investment. What drove you towards this field when it was not a buzzword back in the day?

Fate has a hand in some of the ways our careers develop. For me it goes all the way back to my masters and doctorate dissertation, at Oxford university. I was looking for a subject to research which was connected to politics as well as my engineering studies.  The field I stumbled upon was environmental politics. Going back to eighties and nineties, I started looking at subjects like environmental issues, politics of Ozone depletion, politics of climate change, biodiversity loss, deforestation. These topics threw up questions around equity, good governance between nations, and need for international collaboration to resolve these issues. It was in the nineties that I produced my first major document on global environmental politics. It was a book published by Oxford University Press, and my interest in that field sustained over the next two and a half decades.

Fast forward a few years, I was appointed chairperson of TATA sustainability council. Many of these issues came back into centre stage. For example, in 2015-16,  Nortje Pace, which is a sovereign wealth fund decided overnight to decarbonise their portfolio. One of the companies they drew investments from was TATA Power, which was very strong on thermal power at that time. We saw the impact on investors who were willing to take environmental, social, and governance impact a lot more seriously in terms of withdrawal of investments. That precipitated a set of new actions in the TATA Group.

In 2018-19, me and some colleagues from TATA Group set up ECube. We felt concerns around corporate governance in India, and climate change, which significantly enhanced conversation on ESG. When I look back at my career, the book I wrote during my Oxford dissertation, subsequent experience in the TATA Group, and more recently the work we have done at ECube, all has combined to create a strong sense of what is changing in India.

What are companies getting wrong now while shaping their ESG strategies? What are the loopholes present even today?

We are at a very early stages of ESG in India. Many companies are just getting their arms around it. A common misconception which still exists used to be that ESG is the same as CSR (Corporate Social Responsibility). The fact is CSR is just a sub set of ESG. It addresses only the ‘S' domain in ESG. That is one of the first common misconceptions I find in the industry.

Secondly, ESG is such a vast domain, it can cover everything that impacts environmental impact, social impact, good corporate governance. Corporates should not panic that ESG is a very large domain, instead focus on the concept of materiality. Look at material issues which impact your business, from the indicators across E, S, and G. When you really drill it out, you will realise there are relatively few material issues that can impact a business with respect to the strategy made. I would urge companies to focus on the half a dozen issues of materiality, and then start looking at the broader ESG agenda.

Lastly, the best companies have fixed the governance, not just typical corporate governance. This is not just complying to the SEBI (Securities and Exchange Board of India) regulations, but also E and S. Who in the board and management is responsible for keeping an eye on the E and S strategy? How frequently do you examine who in the company is keeping track about the progress being made? If you can address the governance issue, a lot of things will fall in place

What role do stakeholders play when we talk about holding companies accountable for ESG?

Stakeholders are from every direction, most obvious ones are within the company, the employees themselves. Your employees are your best brand ambassadors, they have to buy in what the company stands for, its corporate governance, values, and ESG performance. If this does not fall in place, it is very hard to get external stakeholders to be a part of their journey.

Next we see customers playing a very important role in shaping the destiny of the companies. Customers are becoming aware about the importance of ESG, and are demanding the companies be compliant. Take for example, Uniliver, who decided that their 70,000 products would carry labels which shows the carbon footprint in delivering it to the customer. It shows how seriously they are taking that issue.

Then you have usual stakeholders who impact every business, namely, regulators, government, increasingly investors in the public and equity market, lenders like banks who are also seeing the risks around ESG. A number of stakeholders are now working to put their best foot forward.

You have also authored a book called ‘Outlast', how did you come across writing this book? Why did we need such a book now?

I set up ECube along with my colleagues at TATA group. The ‘E' stands for engage and empower. I was already well versed with the field. Then Covid hit us, which was when nature struck us back, and revolting at the human impact on environment. When I was at home during lockdown, we could see agendas swiftly changing around us, and I thought it was important to highlight these changes. It was time to communicate it to the broader market, and explain the trends which will shape the hood fortune of businesses going forward.

When we saw the changes that were happening in 1990s during the LPG (Liberalisation Privatisation and Globalisation) era, we also witnessed many companies who were unable to cope with the changes. Subsequently, many companies vanished from the landscape. This new trend that we are seeing now with the focus on ESG is going to see a similar impact on corporate India, and many companies will pay a heavy price and exit the market. This is very similar to the situation we saw in corporate India during the early 1990s. We came up with the title ‘Outlast’, because companies who can see growth in the future will have to potentially outlast their competition. We need to appreciate how quickly ESG agenda is changing in the country.

What lies ahead for India for India in its ESG journey?

Current situation in India is quite dismal as far as ESG is considered. There is huge scope for improvement. If you consider the aspect of air pollution, India accounts for 20 plus of 30 most polluted cities in the world. If you look at issues around social indicators, be it treatment of women, or equtiy for scheduled castes and tribes, their representation in positions of power is quite dismal.

Similarly, if we look at governance there are many cases of default. If we look at airlines, or financial enterprises, many of them have gone bust because of poor corporate governance. Many of the promoters are now in jail for malpractices, which reflects poor corporate governance. It also reflects non performing assets in the Indian banking system which is a reason for India's economic slowdown. We are at a particularly bad scope of time as far as ESG is concerned.

But there is a huge scope for improvement, and the good news is that on each of these indicators, a combination or better regulation, better policies for the future and stakeholder activism is pushing companies to do better. In the corporate world, in the next one year alone the biggest differentiator will be that the business security reports mandated by SEBI (Securities and Exchange Board of India) will mean much more data and information available to the public markets, and how seriously our companies are taking this drive for improvement.

In this decade, the bigger fulcrum more than regulation will be the concerns around climate change. The whole world has seen so many issues around droughts and floods in the last few months, and the like. This will push companies a lot more to do better.