ESG Is Expected To Have Profound Impact On Companies: Parijat Jain, Bain And Company
Environmental, Social and Governance (ESG) is a Mega-Trend which is transforming organisations and will continue to course of businesses globally over the next few decades. Parijat Jain, Partner, Bain and Company speaks about the ever-changing ESG Mega-Trends and how it will become a driving force for transforming companies and businesses. In a conversation with Urvi Shrivastav, Editorial Lead, BW ESG, he discusses all of these as well as perspectives of Bain and Company in this regard.
What are the major ESG trends at this time?
ESG is a critical mega-trend which has gained immense traction in both global and local businesses. It is here to stay and will only gain momentum in the next few years. ESG is expected to have a profound impact on companies, communities and the way businesses function - it is becoming a mark of business quality. Needless to say, businesses are adopting ESG friendly practices (albeit at different rates, depending on the industry). The overall trend is clear – ESG will impact businesses and businesses will transform to adopt ESG friendly practices For e.g. the energy sector in India has been transformed with massive addition of renewable power capacity in the past decade – a clear transition from the old way of doing business to a new “ESG Friendly” way. This marks a shift to sustainable, and green way of doing business. If we look at the agriculture sector, the use of technology is altering the way we produce, grow and transport food- making it more sustainable. This is not limited to on the farm interventions like drip irrigation or targeted application of fertilizers, but also trickles down to the supply chain and traceability of food, which again translates into sustainable food ecosystem. Even industries like aviation & mobility are progressing on path of decarbonization by using sustainable aviation fuels, and new age technologies with alternate propulsion options like hydrogen fuel and fully/partially electric are impacting mobility significantly. These kind of ESG considerations are gradually changing and impacting businesses across the globe.
What are the initiatives Bain is taking in the ESG domain?
Sustainability is at the heart of our business, and we have been a sustainability frontrunner in the industry, achieving carbon neutral status for the past ten years in a row. A decade ago, Bain formalized its Sustainability & Corporate Responsibility practice to support the firm’s corporate clients on their journeys. In 2021, we launched FurtherSM, which is an integrated suite of ESG capabilities to deliver the firm’s collective ambition of creating a more sustainable, equitable and inclusive world. And, we continue to grow and scale our ESG work with clients, help organizations in augmenting growth for businesses and also energize employees while having transformative impact on communities. Today, increased demands from consumers and investors, are encouraging companies to examine their businesses and consider ESG imperatives. Consider a consumer product company which takes ESG into consideration for making decisions related to ordering, packaging materials, etc. ESG is about being value driven and value accretive. Even in other sectors, including – auto or electronic vehicles, agriculture, pharma or logistics – the focus on business sustainability will lead to higher valuation and increased acceptance by the eventual customer Our passion for sustainability also extends to our work with nonprofit sector clients. Bain invests in pro bono consulting support for innovative and effective environmental nonprofits to help them reach full potential and drive transformative social impact.
Parijat Jain, Partner, Bain and Company
What are the issues companies face in ESG reporting?
The BRSR guidelines mandated by the government are for public listed companies. Given the diversity and depth of this sector, it is complex. One could assess ESG from a diversity and inclusion perspective, while others may analyze it from a SDG (sustainable development goal) and projects perspective; someone else may think about decarbonization & climate change. Organizations are working on multiple dimensions as far as ESG is concerned. It is a complex ecosystem to address into a singular reporting format, but efforts are being made to bring all of these views forth in a simple fashion for all companies to measure, track andmonitor.
How has ESG impacted Mergers and Acquisitions?
Many companies are looking to incorporate ESG ethos into their M&A process, to set themselves up with an advantage in pursuing value creation opportunities and a head start in meeting their ESG imperatives. The theme of ESG is being used by businesses to expand in a certain direction and sector. M&A plays a large role in identifying and expanding business scopes and targets. We see energy companies transitioning towards green energy companies, chemical businesses moving to sustainable and organic chemicals as a means of diversifying away from pure chemical fertilizers, and so on. These type of investments are central to the company’s strategy, which emphasizes offering greener solutions that are good for the environment, good for its customers, and good for business. Example- John Deere & Blue River Technology together have formed an incredible solution of precision agriculture which is able to provide exact solution of pesticide, insecticide to each individual plant at significant speed & scale.
How will ESG investment pick up in the coming future?
While ESG adoption has been picking up for some years, we are seeing more and more funds include ESG-based diligences into their investment considerations today. Our research found that Indian funds expect ESG considerations over their PE AUM to grow to 90% in five years from now, up from 39% around five years ago. The key differentiator between the approach towards ESG till a few years ago and now is that funds increasingly view ESG as a value-creation lever instead of as a compliance or cost. This shift in paradigm will accelerate ESG adoption and open up huge opportunities for private equity to create superior value while also enabling the development of frameworks to measure societal return and influence large-scale systems change. Funds that step up to take a leadership role in this inevitable shift hold the potential to write the next chapter of private equity As funds explore how to raise better, invest better, own better, and exit better, they have an opportunity to emerge as leaders capturing outsized value from their initiatives. Firms have unlocked 3%–5% points of EBITDA from ESG levers, and this value is expected to grow
