Prof. Aditya Singh, Chairman, ESG Centre of Excellence
Prof. Marco Casanova, Director of the Centre
Amb Gian Lorenzo Cornado, Italy
Amb Luis Alberto Castro Joo, Peru
Industry leaders
Ladies and Gentlemen
Good Afternoon Everyone,
Thank you Dr Singh and Prof Casanova for inviting me to share my thoughts at the “ESG meets Blockchain Summit”.
2. Friends, Environmental and social sustainability issues have gained considerable currency worldwide among governments and Industry alike in the past decade. This focus has come about in the wake of multiple challenges of climate change, social-economic inequality and Cyber vulnerability.
3. While on the one hand, Governments are trying to find ways how to mitigate the detrimental and existential challenges posed by climate change, Industry leaders on the other hand are increasingly realizing the importance of giving back to society as part of transition from the concept of “Shareholders Value” to “Stakeholders Value”. This is underpinned by ideas of sustainable development and corporate Social responsibility.
4. A new sector for asset management industry has emerged, through Environmental Social Governance (ESG) funds. The Funds are expected to reach US$50 trillion by 2025. Many countries have enacted net zero legislation and new innovations in renewable energy, social regulations and cyber crime which have grown by leaps and bounds supported by investment capital and related regulations.
5. The good news is that everyone is talking about ESG and the bad news is everybody is talking about it.
6. The reality behind this buzz is not as encouraging as it sounds. Rampant green washing aside, the extent to which the ESG industry and huge capital allocations are positively impacting environment and society remain questionable. Green house gases are at all time high. The richest 1% in the world have more than double the wealth of 6.9 billion people. There is a cyber attack recorded every 39 seconds with 43% targeting small businesses.
7. All current ESG efforts are based on a system that incentivizes good behaviour, regulates against bad behaviour and rewards or punishes stakeholders based on a set of measurements and reporting frameworks.
8. This system is proving to be inadequate-
Firstly, over-reliance on incentive-based measurements which can cause bad behavior like green washing and other bad behaviour;
Second, regulations may prevent further harm but does not maximize good;
Third, massive innovation would be needed to defeat climate change; regulation does not spur innovation; and innovation cannot be legislated;
And finally, shareholder-centric free market capitalism needs to give way to stakeholder-centric approach.
9. Industry, therefore, needs to re-look at their ESG approach through genuine stewardship with the intent to “do well by doing good”.
10. Rather than just rules, regulations and incentives, a value based revolution is needed to overcome today’s challenges. There are several examples where companies have taken their CSR and ESG responsibilities as part of their basic value systems and have succeeded in winning not only the trust of the clients but also in mitigating the negative effects of climate change and at the same time creating good for the stakeholders.
11. The shareholder-centric model of capitalism which incentivize – regulate – measure – reward or punish – can no longer be a model to address the serious challenges humanity faces from climate change and sustainable development.
12. ESG rating frameworks are trying to employ sophisticated individual measurements for E,S and G factors. A large amount of governing board’s time is spent on financial planning, regulations compliance and risk management, rather than on ensuring sustainability and strategic innovations.
13. One of the major issues in our approach today is that while environment and sustainability are existential challenges, governance is only a mechanism and a means to achieve it. This bundling facilitates green washing.
14. To save our planet and humanity, we need to nurture steward leaders who take ownership with a long-term view and show creative resilience to achieve SDGs for the stakeholders. Steward leaders are votaries of inter-dependence and see work as an integrated and inter-connected web in which success of each constituent is coupled with that of every constituent. They are willing to forego short term gains to achieve long term returns and build innovations to make the world a better place for future generations.
15. Now let me talk about the efforts we in India are making in this direction. India, as one of the fastest growing major economies in the world, is also committed to fight global warming, climate change, promote ethical investments and ensure socio-economic development. Indian government is taking necessary steps to adapt CSR, ESG and technologies like Blockchain.
16. CSR in India goes beyond philanthropy and integrates social and environmental concerns in business operations. It is viewed as a mechanism to address the socio-economic challenges faced by the country, leveraging corporate resources for the public good. It aligns corporate activities with National Development Goals and Sustainable Development Goals (SDGs), thereby fostering a holistic approach to growth.
17. In India, CSR is a mandatory obligation under the Companies Act, 2013. This legislation mandates companies meeting certain financial thresholds to spend at least 2% of their average net profit of preceding three financial years on CSR activities.
18. Friends, I am happy to mention that Indian companies have spent more than 12 Billion Swiss Francs as part of their CSR commitment since the framework came into force in 2014-15.
19. Friends, while CSR focuses on a company’s contributions to societal goals, ESG has gained traction globally due to growing awareness among stakeholders about the criticality of climate change, social justice, and ethical governance. Investors, customers, and regulators are demanding greater transparency and accountability from companies on ESG matters, making it a pivotal consideration for business strategy and operations.
20. India has incorporated major reforms to integrate ESG principles into modern corporate and regulatory framework to drive sustainable development. Although ESG is not regulated by a single law in India, several institutions including Ministry of Corporate Affairs, Reserve Bank of India and Securities and Exchange Board of India are working on regulations and legislation to ensure implementation of ESG principles.
21. And I am happy to add that the corporate sector has been quite supportive and proactive in adhering to the regulations. For example,
- Major IT companies in India have committed to achieve carbon neutrality by 2030. Some others are aiming to use 100% renewable energy by 2030.
- A construction and manufacturing major has pledged water neutrality by 2035 and carbon neutrality by 2040.
-Tata Group with 155 years of community-focused growth have emerged as examples of “doing well by doing good”.
22. To bring transparency and accountability with regard to CSR and ESG compliance, Blockchain technology can play a pivotal role, due to its decentralized and immutable nature which ensures that once data is recorded, it cannot be altered. This feature is crucial for CSR and ESG reporting for industries like agriculture, manufacturing and retail, where transparency and trust are paramount. Companies can use blockchain to provide verifiable records of their CSR activities and ESG metrics, building trust with stakeholders.
23. Understanding the importance and potential of this technology, Government of India formulated “National Strategy on Blockchain” in 2021 aiming at creating trusted digital platforms through shared Blockchain infrastructure. It promotes applications in Smart contracts, Supply chain management, Asset protection through an indisputable record of real-time ownership, Personal data management and Identification, Payment processing, Crowd-funding through crypto-currencies, tracking drugs in pharmaceutical supply chains, and verification of land records and certificates etc.
24. Friends, despite all this, Blockchain has high implementation cost, and poses risk of massive waste of energy and resources. Only time will tell how much feasible it would be from technical perspective and how economically viable it would be to integrate ESG reporting with Blockchain. But we have good reasons to be optimistic about this revolutionary technology. And we all keenly look forward to interesting discussions and brainstorming session today.
