A business blueprint with ESG at its heart

The rapid evolution of Environmental, Social, and Governance (ESG) considerations from niche interest to business imperative represents a fundamental realignment of market expectations. Companies can no longer afford to treat sustainability as an afterthought; it has become a critical component of long-term success and resilience. As climate change intensifies and investors demand more accountability, businesses are being compelled to adapt. A recent Capital Group study shows that 40% of investors are now conducting their own ESG analysis, with another 37% developing in-house expertise. This makes it clear: Sustainability is no longer optional, it is essential.

ESG issues have garnered substantial attention in recent years, evidenced by a fivefold increase in online searches since 2019. This surge reflects a shift from passive interest to urgent concern, as businesses and stakeholders grapple with the real-world consequences of neglecting sustainability, which include regulatory penalties and diminished customer trust. More than 90% of S&P 500 corporations and 70% of Russell 1,000 companies now publish ESG reports, illustrating that sustainability is increasingly a commercial imperative. Companies embracing this transition are not merely meeting expectations but creating new opportunities for innovation and resilience in a rapidly evolving world.

The financial markets are always keen on emerging trends, and there has been a very robust turn of attention to sustainability. Inflows into sustainable funds have increased, indicating that ESG has risen from the periphery to the top of investor priorities. This momentum is clear, with estimates from Morningstar that global ESG funds would reach $53 trillion by 2025, about one-third of all assets under management. This trend is more than just riding a wave of popularity; it represents a fundamental shift in investment priorities toward long-term environmental and social impact, driven by a rising understanding of the financial and ethical benefits of sustainability.

Investors increasingly view robust ESG disclosures as indicators of a company’s long-term viability. Transparent reporting not only mitigates risks but also attracts capital, positioning companies to thrive in a market where sustainability equates to profitability. A 2022 study of 1,300 ESG decision-makers revealed that non-compliance with ESG requirements can lead to severe risks, including regulatory penalties, investor withdrawals, and reputational damage. The modern market demands more than just financial performance, it expects businesses to be accountable and proactive in their environmental and social impact.

Integrating sustainability into core operations is now regarded as critical to guaranteeing long-term profitability and market relevance. In an era of greater public and investor scrutiny, businesses that fail to highlight sustainability may find themselves at a competitive disadvantage, fighting to rebuild trust.

Over the years ESG/sustainability reporting has evolved from a voluntary exercise to a mandatory obligation, with integrated reporting emerging as a new standard in the field. The concept of Integrated reporting expands on traditional financial disclosures by incorporating both financial and non-financial performance data, offering a holistic picture of value creation within a firm. It is not only helping businesses think holistically about their strategy but is helping them make informed decisions, manage key risks, and build investor confidence. Research suggests organisations that have adopted integrated reporting have a 65% better understanding of business opportunities along with a 79% improvement in decision-making.

Over 2,500 organisations have embraced this approach globally, highlighting the growing need for transparency and accountability in reporting. India too has shown remarkable progress in this space, with more than 40% of NIFTY companies having embraced the IR framework in their annual reporting.

The landscape of sustainability reporting is rapidly evolving with integrated reporting. Companies that adopt a comprehensive value creation strategy and conduct double materiality assessments set a higher benchmark for transparency and accountability. This shift reflects a broader trend of aligning business practices with long-term environmental and social goals.

For businesses aiming to enhance their ESG initiatives, several key takeaways emerge. First, prioritising transparency and consistency is essential, these are not just responsibilities to stakeholders but also to the environment. Companies should openly communicate their ESG goals, strategies, and performance metrics to build trust and demonstrate a genuine commitment to sustainability. Identifying and addressing material issues that significantly impact a company’s performance and stakeholder interests is vital for driving meaningful change. Regular assessments help determine which environmental and social factors are most relevant to operations and stakeholders.

Collaboration with both internal teams and external partners is crucial for successful ESG strategies. Engaging stakeholders fosters a culture of sustainability and innovation, enabling companies to drive impactful change that resonates across the value chain. In today’s interconnected world, a collaborative approach is imperative for achieving long-term sustainability and resilience.

This article is authored by Vaishali Nigam Sinha, co-founder and chairperson of sustainability, ReNew.