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ESGs and why you need them - Simplified

ESG stands for Environmental, Social, and Governance. These are the main aspects/pillars in ESG frameworks that cover environmental issues, social issues, and corporate governance. These are the 3 main areas that companies are expected to report under and can help people in responsible investing.  The main goal of ESG is to capture all the non-financial risks and opportunities pertaining to a company’s day-to-day activities. ESG was originally a framework for evaluating the sustainability related disclosures of listed companies for investors.

An increasing number of investors, regulators, employees, and consumers are holding companies accountable for having not just good financial standing and capital, but also ecological and social capital with a good supporting governance framework. The investment world is increasingly incorporating ESG elements into their decision-making process – which makes it imperative for organizations, especially corporates, MSME sector companies and NGOs to embrace ESG in order to secure capital. Due to this increase in demand, the ESG framework has become synonymous with reporting.

The Environmental: The threat of climate change is ever looming; therefore, sustainability issues play a big role in investment choices. These issues are often broad – like GHG emissions, Biodiversity, Waste and Water management, Air, and ground pollution etc., but have some key areas of focus. They also look into the use of resources, such as the company’s choice of material sourcing for production processes (virgin or recycled), and whether they take the cradle to grave life cycle of their major materials and products into account, instead of relying on landfills and incineration for ineffective disposal. Companies report on their positive sustainability impacts which turns into a long-term business advantage. This is usually considered to be the most complex pillar of ESG reporting, and there are significant limitations in communicating the initiatives, outcomes and challenges faced by organizations. CMS and EcoCollab with our unique set of offerings and services are well positioned to not only provide great frameworks and efficient reporting structures – we do so in conjunction with actually improving the sustainability index of the organization – making for better reporting under this pillar.​


The Social: There has been a strong case being made for diversity and better labor practices among companies leading to employee and company growth. Moving on from the days of “diversity hires” and “tokenism” – improved hiring practices and a genuinely diverse team comprised of different people with different strengths actually lead to stronger workforces and efficient teamwork. Apart from employees, the social pillar also covers human rights, consumer protection, animal welfare (testing, rearing, exhibiting etc.), among others.​


The Governance: Pertains mainly to corporate governance, i.e. the structures and processes that control and direct companies. These make companies more accountable, ensure transparency to the investors and in address stakeholder rights & concerns. It also looks into board diversity, compensations for executives, alignment to the company’s sustainability performance, and corporate behavior such as market competition practices and corruption.


Every company does not face the same issues under the 3 pillars of ESG, and this is where the reporting can seem confusing and complex – making it seem impossible to start. These differences between priorities are referred to as materiality, which simply means that companies report on issues material to them. Materiality is often determined by gauging which ESG issue is considered financially relevant to a particular industry. ESG Reporting typically applies one or more frameworks, and there are many roadblocks faced by companies in communicating their ESG decisions & initiatives. This can be easily overcome by executing monitoring systems, evaluations & impact assessments – all together with reliable ESG advisory services.

What do MSME's and NGO's have to do with ESG reporting?

The Micro, Small and Medium (MSME) sector in India is the largest employer and a vital part of the economy. MSME account for 96% of industrial units in the Indian economy, generating 12 crores jobs, contributing 33% to India’s GDP and account 42% of all exports (Forbes, 2023). While ESG reporting is mandatory for larger corporations, NGO’s and MSME’s do not have any regulations imposed on them as yet. This scenario could soon change, and it would be a competitive advantage to companies who get a head start on their reporting.

Why must MSMEs in India consider getting ahead of the curve?


Carbon reporting follows GHG (Greenhouse Gases) protocol which divides emissions into Scope 1 (Direct emissions from company owned and controlled resources), Scope 2 (indirect emissions from generation of purchased energy) and Scope 3 (indirect emissions that occur in the value chain of the reporting company).  When a large company undertakes ESG, they target Scope 1 & 2 emissions, and it’s not long before they start focusing on reducing their Scope 3 emissions as well. THIS is where MSME entities come in – being suppliers or distributors of raw materials or production, their activities and business will come under the scope 3 of the larger company – thereby putting them at risk of losing business when changes are made in the policies and structures of the larger organizations for ESG compliance. There is also the possibility that in the future – similar to developed countries – RBI may mandate the banks to include ESG performance as a metric to consider before sanctioning loans. Since most MSMEs rely on credit facilities extended by Banks for their main financing- those that become early adopters of ESG policies may stand to benefit quite a bit.

What's in it for NGOs and NPOs?

ESG principles are a direct alignment with the mission statement of most NGOs and NPOs to create positive environmental and social impact, and adopting ESG would enhance their credibility, and also attract and retain stakeholders with similar values. It would also help with legal and regulatory compliance, long-term sustainability that ensures continuity of their positive impacts. This includes promoting financial sustainability, mitigation of environmental impacts and beneficial social outcomes. Most NGOs and NPOs are already aware of and involved in CSR, however, there is a case to be made for preferring ESGs over CSR in today’s climate.

For all these organization types and their materiality -  CMS and EcoCollab can jointly chart the right course and ensure the best frameworks and optimized solutions - All in one place! 

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