• November 30, 2023

Role of CFO in driving the initiatives of ESG in an organization

Role of CFO in driving the initiatives of ESG in an organization

Ms Anita Ananthan writes about the importance of CFOs when it comes to implementing ESG initiatives in an organizations. 

ESG has been at the forefront of discussions and debates especially in the last couple of years, given the broad spectrum and framework of guidelines. Today, ESG is a measure to evaluate the social, economic, and ethical conduct and impact of the organization and its performance measured at par with global standards.

ESG has been followed and practised since the historical years both in the Economic and Social Strata, of course ignoring the repressions and a few social stigmas and norms followed. The Labour Laws have existed and have been amended over the years to adapt to the current scenarios, disclosures and declarations as required by the regulators and the governing bodies. Right from Ethical Conduct, fairness in approach and transparency, social equality and absolute governance, we have seen and read about all of this and learned our lessons and developed and strategized techniques to prevent risks and be prepared for any economic and social disasters. The Oil Spill in the Mediterranean Sea, the economic recession of 2008, the multiple Scams in the financial industry additionally the Cyber Security scams especially post-pandemic, brought in the mandatory need for regulatory governance and the much-needed initiatives, awareness both from the Government and people associated at all sectors and streams of life.

The role of the CFOs is particularly worth mentioning, declaring and disclosing in the various forms and covenants as required by the regulators, shareholders, stakeholders, and investors. It is really commendable to see many of the A-listed companies have taken the initiatives and own up many of the Govt Self Awareness, Ethical approaches in all spheres of business conduct and joining in the Government initiatives of ESG has been observed in all documentation which includes to the Vendors, Clients (Data Protection, Anti Bribery Clauses included in Contracts, Non-Disclosures Contracts,) Employment Letters, Consultant Contracts, Investor Reporting, Regulatory Reporting and Declarations, Director Disclosures as part of Financial reporting and Statements. Digitalization and implementation of technology have only helped and accelerated these processes of Data Collation and ensuring the True and Correct Disclosures possible.

ESG reporting frameworks are used by companies for the disclosure of data covering business operations and opportunities and risks related to the environmental, social and governance (ESG) aspects of the businesses ESG frameworks are guidelines for documenting and reporting on corporate commitments to environmental, social, and governance goals. ESG frameworks are systems for standardising the reporting and disclosure of ESG metrics. They are often voluntary but may be required by a certain investor or by regulations in some countries.

ESG reports are most often used by investors — both institutional and personal — as a way to analyse and measure factors they consider important. ESG reports are also used by regulators in some industries to keep tabs on issues like carbon emissions, the use of natural resources, and human rights.

The regulatory framework related to environmental, social and governance (ESG) is not found in any one piece of legislation but comes under various pieces of legislation, including the Factories Act, 1948, Environment Protection Act, 1986, Air (Prevention and Control of Pollution) Act, 1981, Water (Prevention and Control of Pollution) Act, 1974, Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2016, Companies Act, 2013 (Companies Act), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), Prevention of Money Laundering Act, 2002, Prevention of Corruption Act, 1988, and laws with respect to the payment of minimum wage, bonus, gratuity, welfare activities, health and safety, etc.  Various aspects of ESG are covered under these pieces of legislation in a fragmented manner

In India, the principal regulators with respect to ESG are MCA, which supervises corporates incorporated under the Companies Act, and SEBI, which supervises publicly listed companies as well as asset managers. The Government has codified 29 labour laws into four codes, namely: The Code on Social Security, 2020; the Industrial Relations Code, 2020; the Code on Wages, 2019; and the Occupational Safety, Health and Working Conditions Code, 2020. These codes provide for the right to minimum wage, social security, and the right to security for workers in all situations, among others.

While the principal responsibility of addressing ESG issues lies with the Board of Directors, Various Committee are formed internally like the Audit Committee, Risk Committee, CSR Committees, and Stakeholder Committees which need to integrate and perform, since most of their activities overlap monitoring and supervision on matters related to compliance and oversight.

Many large companies have responded to government initiatives and ESG positively and proactively. A survey undertaken by CRISIL on the ESG risk assessment of 586 Indian companies based on data from the fiscal year of 2021 indicates an improvement in the ESG scores of the majority of companies when compared with the previous year, driven by better disclosures and improved performance on various parameters. In order to sustain market expectations and create long-term value, it has become essential for boards and management to consciously focus on ESG considerations.

Large Companies, popular and contributing to the economy and society,  need not necessarily be the most ethical, transparent and principally compliant with all the regulations. Many financial scams have been exposed due to Financial mismanagement and failure to disclose which has necessitated regulators like SEBI to mandate many declarations under regulatory guidelines and a few laws have been passed while the Legislation Act, is yet to be passed.

There has also been a spike in the investor demand for higher ESG ratings and an actual tendency to integrate ESG into their decision-making  

As of date, I would like to conclude that whatever framework or guidelines which is being practised by Organizations, the desire and initiative to practice Ethical standards and contribute to the Social and Economic of the Employees, Stakeholders and Society at large should be conceptualized and designed by the organizations involving as a principle and Policy then as a regulatory or Mandatory  Law.

Disclaimer:  The above thoughts are inspired by the activities initiated by the government and with the intention to reach out to the maximum number of young entrepreneurs. The views are purely of the author and are not part of being a government influencer of any programmers or schemes. Any complaints, clarifications, or queries can be addressed to anitaananthan@gmail.com.

Anita Ananthan

Anita Ananthan

Anita Ananthan is a Chief Financial Officer in a micro-certified MSME Software company. She is a three-time winner of CFO100 - Roll of Honor, and has completed certification in Fraud Risk Management and Data Protection Management Practices. Anita Ananthan is also an Alumni of the London School of Economics.

Leave a Reply

Your email address will not be published. Required fields are marked *