INTRODUCTION
In today’s corporate landscape, the Environmental, Social, and Governance (ESG) framework has emerged as a formidable force among other factors. ESG considerations go beyond traditional financial metrics and encompass a broader spectrum of factors, including environmental impact, social responsibility, and ethical governance. As companies increasingly recognize the significance of ESG in their operations, a new player is emerging as a key influencer in this domain: the company secretary. Company secretaries, being governance professionals, are among the most eligible individuals for overseeing ESG frameworks within corporations.
Traditionally associated with administrative and compliance duties, company secretaries are now finding themselves at the forefront of ESG integration within organizations. Being familiar with the terminology and closely connected to the management of the company, company secretaries are in a better position to handle and deliver results under the ESG strategies of companies.
THE CHANGING LANDSCAPE: ESG AND CORPORATE GOVERNANCE
In the past, corporate governance primarily revolved around financial and regulatory compliance. However, the rise of ESG has expanded the purview of governance to encompass a broader range of factors, from reducing carbon footprints to promoting diversity and inclusion. This shift necessitates a more holistic approach to corporate governance that takes into account non-financial aspects.
Company secretaries, as guardians of corporate governance, are uniquely positioned to steer organizations in this new direction. They now find themselves tasked with navigating the complex landscape of ESG principles and practices. The ‘G’ in ESG is the forte of Company Secretaries, setting them apart as the driving force behind ethical governance, alongside their roles in managing the environmental and social aspects.
ESG INTEGRATION: WHAT IT MEANS FOR COMPANY SECRETARIES
ESG integration involves embedding sustainability considerations into a company’s core operations and decision-making processes. For company secretaries, this means going beyond their traditional role of ensuring compliance with regulations and shareholder communication. They must now actively engage in:
OPPORTUNITIES FOR IMPACT
Company secretaries have a unique vantage point within organizations being one of the Key managerial Person, granting them the ability to drive change from within. By championing ESG initiatives, they can:
– Enhance Reputation: Help the company build a positive image and reputation by aligning with sustainable practices.
– Attract Investors: Attract socially responsible investors who are increasingly considering ESG factors in their investment decisions.
– Mitigate Risks: Identify and mitigate ESG-related risks, protecting the company from potential crises.
– Foster Innovation: Encourage innovation in sustainability practices and product development.
– Cost Reduction: Sustainability ultimately leads to a reduction in expenditure. For example, switching to LED bulbs instead of traditional bulbs and using green power instead of conventional power.
OVERCOMING CHALLENGES
While the expanded role of company secretaries in ESG offers significant opportunities, it also presents challenges. These may include resistance to change, resource constraints, and a lack of standardized ESG reporting frameworks. To overcome these challenges, company secretaries should:
– Advocate for ESG within the organization, educating stakeholders about its benefits. Awareness is a powerful tool for achieving goals.
– Collaborate with other departments to streamline ESG efforts and pool resources. Explore sustainable initiatives in each department that can contribute to the company’s overall ESG goals.
– Stay informed about evolving ESG standards and best practices. Keeping an eye on all developments within the ESG framework, staying updated with reports from organizations like Niti Aayog, and monitoring India’s progress on the 17 Sustainable Development Goals will help the company align its goals with those of the country.
COLLABORATION AND COMMUNICATION
ESG works on the motto of “TOGETHERNESS”. Effective collaboration and communication are paramount for success in the realm of ESG. Company secretaries must work closely with executive leadership, sustainability officers, and other departments to ensure alignment with the company’s ESG goals. Transparent communication of ESG initiatives to shareholders and other stakeholders is equally essential. Even collaborating with other peers in the industry or your suppliers will help corporates to achieve their goal of sustainability and ultimately leads to broader.
THE ROLE OF COMPANY SECRETARIES IN REGULATORY COMPLIANCE
ESG reporting and compliance requirements vary by region and industry. Company secretaries must stay abreast of the evolving regulatory landscape to ensure their organizations remain in compliance. Let’s explore some of the key regulatory considerations:
1. Global ESG Reporting Frameworks
ESG reporting is the process of publicly disclosing an organization’s progress toward meeting its goals and commitments on environmental sustainability, social issues and corporate governance. The reports, generally done on an annual basis, include details on different ESG metrics used to measure performance in those three areas in both quantitative and qualitative ways. They often also list the long-term objectives of ESG strategies and provide updates on key milestones.
Numerous global frameworks exist for ESG reporting, including the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB) and Business Responsibility and Sustainability Reporting (BRSR). Company secretaries must understand the differences and nuances of these frameworks and tailor reporting to meet specific requirements.
2. Mandatory Reporting Requirements
Some jurisdictions have implemented mandatory ESG reporting requirements. For example,
1. the European Union’s Non-Financial Reporting Directive mandates certain companies to disclose non-financial information, including ESG data.
2. The Business Responsibility and Sustainability Report (BRSR) is required for India’s top 1,000 listed companies, and it’s mandatory for FY2022-23, which ended on March 31, 2023.
Company secretaries must ensure compliance with such regulations to avoid legal repercussions.
ESG AND BOARD-LEVEL GOVERNANCE
The board of directors plays a critical role in overseeing ESG integration, and company secretaries are instrumental in facilitating board-level governance in this context. Here are key considerations:
1. Establishment of ESG Committees
To show stronger commitment to ESG, a good number of blue-chip companies in India from diverse sectors have constituted ESG committees, either at board level, or management level, or cross-functional ESG committees, as can be seen from published reports from manufacturing giants Ashok Leyland, Bharat Forge and Hitachi; IT major Infosys; conglomerates Vedanta (including group company like Hindustan Zinc), Godrej and Welspun; telecom operator Bharati Airtel, real estate investment trusts Mindspace and Embassy; realtor Lodha; major pharmaceuticals Biocon and Glenmark; financial players Axis, HDFC, ICICI, RBL Bank and Bajaj Finance; and asset management companies UTI Mutual Fund and Nippon Life India.
Company secretaries often can take the lead in coordinating these committees, ensuring they have the necessary resources and information to fulfill their duties.
2. Integration with Strategic Planning
ESG should be integrated into the company’s overall strategic planning process. ESG integration into a broader strategy can improve performance and enhance the competitiveness of an organization. It includes reconsidering and redefining strategy and operational processes to improve and sustain profitability. The probable value of integration of ESG strategy includes the following:
- Long-term value by considering material ESG opportunities and risks
- Improved brand reputation among consumers, employees and investors
- Improved market differentiation through strategic position in sustainability
- Improved relationships with stakeholders
Company secretaries work closely with the board and executive leadership to align ESG goals with the company’s mission and vision.
BUILDING SUSTAINABLE CORPORATES: OPPORTUNITIES FOR COMPANY SECRETARIES
The evolving role of company secretaries in ESG presents numerous opportunities to make a lasting impact within their organizations. Here are some strategies to seize these opportunities:
1. EDUCATE AND ADVOCATE: Company secretaries should continuously educate themselves about ESG trends and best practices. They can then advocate for ESG integration within their organizations, emphasizing the potential benefits in terms of reputation, investor attraction, and risk mitigation.
2. COLLABORATION WITH CROSS-FUNCTIONAL TEAMS: Collaboration with sustainability officers, legal teams, risk management, and other relevant departments is crucial. By fostering teamwork, company secretaries can ensure a holistic approach to ESG integration.
3. ALIGNMENT WITH THE UN SUSTAINABLE DEVELOPMENT GOALS (SDGS): The United Nations has provided a comprehensive framework for sustainable development, which many organizations are striving to align with. Furthermore, India, as a country, has identified its own priority SDGs and has established specific policies and frameworks to address them. Company secretaries can play a pivotal role in exploring how their organizations can actively contribute to these global goals.
THE FUTURE OF ESG AND COMPANY SECRETARIES
As the ESG landscape continues to evolve, company secretaries will find their role becoming increasingly integral to corporate success. The future holds several key trends and developments:
1. Enhanced Reporting: ESG reporting will likely become more comprehensive and standardized, driven by regulatory changes and investor demands. Company secretaries will play a central role in ensuring accurate and transparent reporting.
2. Technological Integration: The use of technology, including data analytics and ESG software platforms, will facilitate ESG data collection, analysis, and reporting. Company secretaries may need to adapt to these tools to streamline their responsibilities.
3. ESG Education: Company secretaries may need to expand their knowledge of ESG issues, attending training and development programs to stay current with the latest trends and regulations. ICSI has also launched its crash course on ESG Analysis.
4. Increased Stakeholder Engagement: ESG considerations will continue to draw the attention of various stakeholders, including employees, customers, and investors. Company secretaries will be instrumental in facilitating dialogue and addressing concerns. Conducting in-house awareness sessions for employees and sending monthly newsletter to customers and suppliers will lead to better engagement.
5. Evolving Regulatory Landscape: As governments worldwide implement new regulations and disclosure requirements related to ESG, company secretaries will need to stay informed and ensure compliance.
CONCLUSION
In conclusion, the role of company secretaries is undergoing a profound transformation in the era of ESG and sustainability. These professionals are no longer limited to administrative and secretarial compliance tasks but are now key players in driving ESG integration within organizations.
By embracing this evolution, company secretaries have the opportunity to make a substantial impact on their organizations. They can enhance corporate reputations, attract socially responsible investors, mitigate risks, and foster innovation—all while contributing to a more sustainable and responsible corporate world.
The journey toward full ESG integration may present challenges, but with dedication, collaboration, and a commitment to education, company secretaries can navigate this path successfully. As ESG continues to gain prominence in the corporate landscape, company secretaries will play an increasingly vital role in shaping the sustainable and responsible corporations of the future.
*References*
https://www.techtarget.com/sustainability/feature/Top-ESG-reporting-frameworks-explained-and-compared
https://sphera.com/spark/esg-reporting-is-required-for-indias-top-listed-companies/
https://www.ibanet.org/revolutionising-the-board-governance-of-environmental-social-governance
https://www.ey.com/en_in/climate-change-sustainability-services/why-integrating-esg-into-your-business-could-be-the-key-to-its-resilience
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