In the early 1980s, a business's motto was to make a profit, but recently, it aims to satisfy its stakeholders by fulfilling their needs. The firm is responsible for the environment, society and community within which it operates, giving rise to the ESG concept. Indian Companies Act, 2013 made it mandatory for all the firms to disclose the amount they spent on corporate social responsibility from the April 1, 2014.

This amendment helps Indian firms to follow the stakeholder approach of corporate governance. Similar to CSR, the new norms for ESG were introduced in 2020 by the market regulator, Securities Exchange Board of India (SEBI), for the top 1,000 listed firms by market capitalisation. Thus it becomes mandatory for these firms to comply with the disclosure norms by the Financial year 2022.

ESG funds are gaining popularity in the Indian mutual fund industry; under social and regulatory pressure, an increasing number of corporations will adopt this concept to attract private equity. Banks and financial institutions are obligated to offer better interest rates to companies that adhere to ESG standards.

By the end of the Spring in 2020, Covid-19 had spread its fangs on the world economy, crippling it mercilessly. Global businesses were directly bearing the burnt of towering sickness rates leading to a reduction in the workforce. Shutdowns in significant cities of the world nurtured "Work from Home," International travel ban grounded major airlines, There were issues with network failures and global connectivity.

Businesses shifted their emphasis from profits to people; human impact, equality and health services were on the agenda. Economies crawled; everything from fishing to mining either had shut down or significantly reduced operations. People remained indoors, and cars remained in the driveway. It was evident that environmental and social factors directly influence economic stability around the globe.

As the world slowly recovers post the third wave of the global pandemic — a new norm; of Environmental, Social and Governance (ESG) has increasingly become central to the economic equation.

Banks have a determinant roleplay in developing economies, executed by managing risk and controlling access to capital and financing activities; they are considered socially responsible in the present economic scenario as they adopt socially accountable actions disclosing their sustainable reports.

Ethical impact

ESG has gained a foothold among the stakeholders and is considered a modern dimension of corporate social responsibility. ESG (Environmental, Social, and Governance) refers to the three most essential factors which determine the long-term and ethical impact of a business or company investment. The majority of socially responsible investors use ESG criteria to screen investments.

Decisions of the shareholders are influenced by the environmental aspects too; even though it has been agreed that ecological hardness does not affect the financial sector but at the same time, if corrective measures are adopted, significant savings can be achieved in the billing/consumption of electricity, water, and fossil fuels fuel, and paper. Social performance describes how an organisation treats its employees, the community, and client.

Since customers are considered King in the Indian context, banks are expected to treat them appropriately. Presently, banks disclose diversity data, human rights policies, and LGBT equality in the workplace. With a corporate governance system in banks, the board of directors and executives act in the best interests of its long-term shareholders.

The banking industry, a highly regulated industry/service sector, has an indirect impact on environmental and social factors. Still, the increasing financial relevance of climate change and work-culture-related controversies is no longer perceived as a reputational risk but detrimental to long-term financial performance. Inclusion of such factors in the credit appraisals, the core activity of commercial banks, makes it a financial material indicator and crucial to ascertain the quality level of disclosures.

ESG reporting is vital for both managers and shareholders of banks. Through ESG reporting, managers seek to create more firm value and higher future profits. For the shareholders, ESG reporting leads to higher share prices and dividends. One goal of financial reporting is to provide ESG information because information on ESG influences the shareholders' investment decisions.

This occurs when the share price changes as a result of new information. ESG report(s) aid in the development of legitimacy, the satisfaction of stakeholders, and the prevention of future political costs for the organization. A positive image created by ESG reports is advantageous in attracting employees and customers. All these factors can substantially increase the profitability and value of the firm and are also beneficial for the investors.

Drave and Sasidharan are Assistant Professors at Jindal Business School, O.P Jindal Global University, Sonipat. Garg is a Final Year MBA Student at Jindal Business Global School, O.P. Jindal Global University. Views expressed are personal

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