Would ESG help in ecosystem restoration?

The theme for World Environment Day this year is Ecosystem Restoration. This day also marks the launch of the UN Decade on Ecosystem Restoration to ensure that for the next ten years we focus on resetting our relationship with nature. That the focus during this decade would be on restoring ecosystems globally, highlights the mess we have created for ourselves. The conservation and restoration of our ecosystems would ensure greater green cover, richer biodiversity, protection of endangered species and creating larger carbon sinks. We have realised its importance more than ever after witnessing humanity suffer one of the worst pandemics in decades.

Conservation and restoration

The onus now is not just on the governments and development agencies but also the communities and, more importantly, on the businesses to ensure that environment protection, including ecosystem conservation and restoration is at the heart of everything they do hereafter. Interestingly, with the recent focus on Environmental, Social and Governance (ESG) data by financial institutions, investors, insurers etc. there could not have been a better tool to ensure ecosystem conservation and restoration. While there is much more to ESG than just environmental protection, it might just serve as the wonder pill to cure us of our sustainability woes.

BRSR framework

The usual assumption is that the profit motive guides businesses. Therefore, they ignore doing much on the environment, health, well-being etc., unless coerced by the regulator or directed by the courts. However, the recent focus on ESG parameters by funding institutions etc., might just change the discourse. Investors and companies are increasingly recognising the importance of addressing environmental challenges and climate change risks to secure their investments and future. Notably, this step has also been at the instance of the regulator, the Securities and Exchange Board of India (SEBI). However, despite the reporting being voluntary for the current financial year, companies are already gearing up to ensure that they perform well on the ESG parameters prescribed in the Business Responsibility and Sustainability Reporting (BRSR) framework prescribed by SEBI for the top 1,000 companies in India by way of market capitalisation.

ESG reporting requirements promote sustainable investments by ensuring that investors can assess the performance of their targets on ESG parameters before making investment decisions. However, there is also a need to ensure transparency and accountability to ensure that the ESG tag is not used by just anyone and that the ESG-focused funds put their money where the mouth is. This will ensure the sanctity of this initiative. While these are early stages, once we mature as a market and there is wider awareness and acceptability of the idea, we will witness better accountability on both sides.

ESG reporting

A question, therefore, arises as to whether ESG reporting will help restore our ecosystem, solve the climate change crisis, make cities cleaner and waters clearer? The answer is in the affirmative. However, is ESG sufficient to ensure it on its own? The answer is a clear ‘no’. We need to understand and appreciate that innovative initiatives like ESG reporting will ensure that financial institutions and companies set their house in order. However, this will always be influenced by our policies and how we set the priorities for all the stakeholders including the governments and civil society. We need to simultaneously work towards achieving our committed targets under the climate change mitigation initiatives like the Net Zero Agenda, Sustainable Development Goals (SDGs), Nationally Determined Contributions (NDCs) etc. .

Environmental laws

Companies are increasingly taking up voluntary commitments to address climate change. Our courts in various judgments have also reiterated how Corporate Social Responsibility (CSR) could be an effective tool towards environment protection, ecosystem restoration, wildlife conservation etc. We have funds for compensatory afforestation, which, if utilised well and for the purpose for which they were created would make a very positive impact. Our environmental laws are being revised to meet the requirements of the changing times. However, until they are not diluted in the garb of improvement and the focus is on protecting the environment and vulnerable communities while ensuring economic progress, it is a commendable effort. While the laws need to be revised and consolidated from time to time, the key always remains in its practical and transparent implementation, boosting investor confidence.

To sum up, ESG reporting by companies would definitely help in ecosystem restoration because the reporting mechanism would ensure that we have quality data that would guide us in assessing and addressing activities that may have a detrimental impact on the environment, including the ecosystems. This reporting obligation will also help the companies mitigate their non-financial risks. All our activities have an environmental impact. Be it the emissions, the effluents, the waste generated, our use of natural resources; everything hits the ecosystem around us. So, if we assess our activities and introspect to ensure that we cause no harm to our ecosystem, the purpose will be served. ESG reporting and data is a very effective tool that will help us achieve this. Happy World Environment Day!

The author is a Partner in the Environmental Law practice at Shardul Amarchand Mangaldas & Co.

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