ESG stands for Environmental, Social and Governance. From financial year 2022-2023, the top 1,000 listed companies in India (by market capitalisation) will need to prepare a ‘business responsibility and sustainability report’ (or BRSR), containing detailed ESG disclosures. The BRSR has to be a part of the annual report, which gets notified to the stock exchanges, published on official company websites and separately provided to shareholders. Before the BRSR became mandatory, the top 1,000 listed companies in India (by market capitalisation) had to publish a relatively shorter ‘business responsibility report’.
In the current environment, health, safety and governance could be parameters of the measure of social aspects of the ESG agenda and will remain a high priority for the engineering and construction (E&C) industry. Governance will be a sensitive issue given the size and complexity of contracts, competitive bidding processes and the need to engage with both public and private stakeholders and to prevent bribery, corruption and anticompetitive behaviour. The building and construction sector is responsible for 39 per cent of carbon emissions globally, according to the World Green Building Council, and hence has to work hard to match the goals and commitments. Therefore, carbon reduction and environmental initiatives are a business imperative for contractors in the days ahead.
India ranks a lowly 120 among 165 countries in its progress towards achieving all 17 SDGs (sustainable development goals), lower than Sri Lanka, Nepal and Bangladesh. Reliance Industries Ltd (RIL), Vedanta Ltd, JSW Energy and HDFC Bank have planned to go carbon neutral in the next few decades. Good ESG scores are helping companies tap into newer pools of capital and build valuations to attract investors in these reorganised entities, while enhancing shareholder value.
Vedanta is restructuring its operations and may demerge and list its aluminium, iron and steel, and oil and gas businesses as standalone entities. Restructuring a mammoth like RIL means transferring its gasification assets to a wholly owned unit, which will help it produce hydrogen to establish a hydrogen ecosystem while JSW Energy is housing its green energy business in a new wholly owned unit, JSW Neo Energy Ltd, as it continues to keep the thermal business as part of the main company. The green business is expected to contribute more than 62 per cent of JSW’s earnings before interest, taxes, depreciation and amortisation.
Despite my assessment that the war would be a short and swift strike-and-occupy kind of exercise, it has turned out to be a twister and is now propelling the pains of supply disruptions, ballooning inflation to astronomical levels. All margins are under pressure. Companies are sitting with orders but their inability to supply products owing to critical part shortages is causing them to bleed. Fortunately, the building and construction industry is not facing these issues although inflation caused by cement, steel and bitumen has hit margins and time schedules.
Holcim, the owner of companies like ACC, Ambuja and Lafarge among cement brands, is India’s second largest producer of cement with a combined capacity of 45 million tonne, excluding LaFarge which has a capacity of 8 million tonne. Sweden, where Holcim is based, has the highest carbon tax rate worldwide at $ 137 per metric tonne of CO2 equivalent. Holcim has decided to exit the Indian cement business and put it on the block. Adani and JSW groups are the frontrunners for this deal. Holcim’s move may be in line with its goals to reduce its carbon footprint to net zero. It has even joined the Science-Based Targets initiative detailing its net-zero pathway to 2050. Holcim would be a torchbearer in ESG within the building material industry.
On the eve of the 7th anniversary of the Smart Cities Mission, I feel the seeds to save the planet have been sown by turning the imperative into a commercially beneficial movement. After BRSR, the Government may push for a carbon tax in India too. It is quite likely that in the years ahead, if you are not green you would pay more – and if you are green, you would be more valuable.
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JSW Group are the frontrunners
Holcim has decided to exit the Indian cement business
Adani
Good ESG scores are helping companies tap into newer pools of capital and build valuations to attract investors in these reorganised entities, while enhancing shareholder value
