The transformation of India Inc in 1991 after liberalisation and in 2000 after the technology movement was stellar. Earlier, our success with the Green Revolution in the 70s was acknowledged worldwide. Now, we are confronted with a new era of impact capitalism, wherein the role and remit of business and investment have expanded to include social and environmental outcomes in their decision-making. Can India Inc. ‘win’ the new impact revolution?
Since the Y2K challenge at the turn of the century, a string of Tech milestones has built a strong technology foundation for India’s 21st century- $194 billion IT & Business Process Management market; 1.31 billion Aadhaar Cards; 430 million Jan-Dhan accounts with $20 billion deposits; 330 million Indians adopting digital payments or banking; 845 million smartphone connections; and 45% and growing internet coverage are all towering accomplishments for an emerging country over two decades.
ESG, Sustainability and Impact Milestones Ahead
Businesses, investors and regulators globally have embraced Environmental, Social and Governance (ESG) reporting, entering the three-step impact continuum. This helps ascertain the impact of a company's business on the environment, society and governance.
Around 75% of Fortune 500 companies and 81% of S&P 500 companies are engaged in sustainability or ESG reporting. There are 3,500 certified B-Corps, companies which balance purpose with profit, in 150 industries across 70 countries. Corporations like Danone, a multinational food-products company, are embracing impact accounting, bravely disclosing that their carbon-adjusted earnings per Share (EPS) is 30% lower but growing faster than their financial EPS.
As investors nuanced these overlapping concepts, they have globally converged on the differentiation between ESG, sustainability and impact.
What India Inc must do
Amidst this global pivot to the impact continuum, India Inc will be well served by reflecting on the ABC of the impact continuum — A for avoid harm or ESG investing, B for benefit all stakeholders or sustainability investing and C for contribute to solutions or impact investing.
Globally, a whopping $60 trillion had moved to the impact continuum by the end of 2020. The core difference is — ESG is a screen, sustainability is a strategy and impact is a system. Investors use ESG criteria to screen target companies as per their investment filters. Corporations pursue sustainability as a strategy not only for compliance with emission or waste norms but for long-term viability, as sustainability risk is an investment risk. Finally, impact performance is a system as it comprehensively looks at product, people, planet and policy impact, integrating product/service impact on consumers and beneficiaries, which ESG and sustainability concepts ignore.
History and future of sustainability, ESG, and impact reporting
The idea of modern “sustainable development” was spawned with the coinage of the term by the UN’s Brundtland Commission in its 1987 report titled “Our Common Future”. It defined the term as “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” However, its genesis and growth are intertwined with the emergence of an assortment of movements and institutions including Rachael Carson’s Silent Spring, International Union for Conservation of Nature, UN Conference on The Human Environment & UNEP, India’s Chipko Movement, US National Environment Policy Act, and OPEC Oil Embargos (1973 & 79). For reporting, sustainability includes all environmental parameters to protect people and the planet, balance business and society, and is headed towards an “integrated reporting” framework.
ESG as a practice came to the fore in 2005 with multiple initiatives shaping the idea: triple bottom line, Global Reporting Initiative, Carbon Disclosure Project (2000), UN-led PRI or Principles of Responsible Investment, UN Global Compact, Sustainability Accounting Standards Board, and G20’s Taskforce on Climate-related Financial Disclosures. ESG metrics and reporting, although yet to be standardised globally, have emerged as a core group (30-45) of minimum KPIs, for transparent corporate disclosures to regulators, markets, exchanges, analysts & investors.
In a similar vein, the Rockefeller Foundation helped coin the term impact investing in 2007, following another course of evolutionary events including the UN’s Millennium Development Goals, early impact-focused investment funds like Triodos, Acumen and Aavishkaar, awarding of Nobel Prizes to Muhammad Yunus (2006) and Al Gore (2007) for social and climate insights, India’s Impact Investors Council (2014), UN’s Sustainable Development Goals, G7’s Global Steering Group for Impact Investment, and the Impact Management Project. These events enabled the rise of impact as an economic concept like risk or return. In fact, Impact Assessments like Aspire 4P Reporting offer a total impact performance management system, subsuming sustainability and ESG reporting.
What impact unicorns have proven
That impact and profit can go hand-in-hand has now been proven irrefutably. The scaling of impact enterprises over the last two decades and the rise of scores of unicorns will go down in economic history as one of the most successful eras ever. TESLA crossing $1 trillion in market cap, Beyond Meat at $5 billion and Hollywood star Jessica Alba’s The Honest Company at $2 billion are outstanding examples. Drone delivery company Zipline, wearable device company Orcam, and microbe seed company Indigo are all unicorns. In India too, Amul and Dodla Dairy, Jain Irrigation in drip irrigation, FabIndia in consumer goods, and Narayan Health in affordable healthcare are all billion-dollar impact babies. This is the decade of impact.
Paradoxically, such accomplishments have also coincided with rising number of protests from Occupy Wall Street to Extinction Rebellion, highlighting the world’s social and sustainability challenges. Impact revolution shows a way forward to address these challenges by way of embedding impact, alongside risk and return, in every business, investment, policy and consumption decision. For their part, Indian businesses are already bracing themselves for an era of impact capitalism with business responsibility and sustainability reporting (BRSR) making significant advances. As such, taking a cue from their global counterparts, India Inc must fully embrace impact!