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Aug 05, 2024
Balancing Short-Term Pressures with Long-Term Gains in ESG
For quite some time, our gurus, saints, and philosophers have been telling us about the benefits of meditation. I think we all understand its importance. We understand it will give us benefits. But perhaps we don't have time. Whenever there is a seminar or a meditation camp, we do it, but at home, we find ourselves busy as usual. But those who have done it see the benefit in due course. Meditation saves time. It makes you more efficient.
I think the same thing is happening with sustainability. We in companies have considered it a cost because, ultimately, somewhere, it is one more thing to do, and somewhere it is adding to the cost. In Apollo tubes, we went for the Dow Jones sustainability index, and it cost a lot. Year after year, we improved. But what we saw as a byproduct was that our cost of conversion and our cost of production became the lowest in the industry. We, as a board, felt that a large part was because of the ESG parameters we had undertaken. I think that is the benefit of ESG.
So ESG, or sustainability goals or net zero goals, remain a cost or a problem for some time, but like all good things that give you pain in the short term and benefit in the long term, sustainability is no different. I'm not talking at the global level; I'm talking at the company level. We have been talking about this subject for quite some time now. Success has been achieved, but it is limited. While the government has been enforcing measures, our progress remains limited by the extent of the actions we have taken individually.
Long-term investors, those who have been with a company for 10–15 years, enforce ESG goals because they understand that for their investment to endure, the company must prioritize sustainability to ensure its own survival. By nature, the CEO will be thinking of the next 5 years, and by definition, the board will be thinking of 25 years.
We analyzed it, and one of the parameters we saw was that there was a conflict. Conflict between what the CEO is supposed to do and conflict what the demand is from the society. We, as CEOs, have to see the stock market every day because 20% of shareholders are interested in the price moving up, quarter after quarter. How do you move the price? The only way is the bottom line, i.e., profit. If you have to look at profits, you cannot be thinking of social requirements, environmental requirements, or welfare. That is a conflict.
That conflict will remain because there is no way, in the short run that you can achieve or invest in ESG without hurting your bottom line. In the long run, benefits do come. I feel like it happened in the case of CSR; initially, everyone was against CSR. So we all went through all that trauma. But in due course, I think there is hardly any board meeting where 20% of the time is not spent on CSR-examining what all we have done and what we have not done. That has happened, not because the CEO thought that CSR was good, but because the board thought that it was good and enforced it.
I think the same will happen for sustainability. After all, it is the work of the board members to think about the future and understand where the long-term benefits are. By nature, the CEO will be thinking of the next five years, and by definition, the board will be thinking of 25 years.
Suppose a city, let's say Goa. The whole city is based on tourism, and all the companies and hotels decide to forget about ESG and look at profit. In due course of time, in only five years, 10 years, or 15 years, there will be no greenery, no water, and there will be nothing left. Now, will the city survive? Perhaps not. Therefore, it is the duty of the board to see that in 10 years, 15 years, and 20 years, the company has to survive, and for a company to survive, the environment has to survive. Sustainability has to be there.
We have seen that while many boards are beginning to take action, investors are forcing it now, and I think that's the best part. I'm talking about long-term investors. Longterm investors, those who have been with a company for 10-15 years, enforce ESG goals because they understand that for their investment to endure, the company must prioritize sustainability to ensure its survival.
See the benefit of it. Many companies in India are improving their Dow Jones score, quarter after quarter and year after year. I have a feeling that we, as board members, have to go beyond our immediate needs, beyond what the management is talking about, just like what we have done for CSR. In the same way, if the board takes up reviewing ESG and sustainability in the next 5 to 6 years, our progress will be as good as we have seen in CSR.
Thank you.
Excerpts from the 'Special Address' delivered by Mr. Ashok Kumar Gupta, Managing Director, th Shalimar Paints Limited in 'Session-II' of the 25 International Conference on Environment Management and Climate Change, held on June 27, 2024 in Hotel The Lalit Ashok, Bengaluru
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