6 Reasons to Practice ESG
Last Update On 11th March 2025
Duration: 7 Mins Read
The question still seems to linger in many minds: Why should we care about ESG? Why put time, manpower, and material resources into some ESG frameworks and strategies?
The fact is, ESG is not a fad or a compliance matter; it is a paradigm shift in the way organisations conduct business in the twenty-first century. From value protection by better risk mitigation to improved ESG performance and meeting consumer demand for sustainability, there are several reasons why the practice of ESG is important for long-term business sustainability.
In this blog, we go through some of the most overwhelming reasons why businesses and financial institutions should incorporate ESG principles into the core of their operations.
6 Reasons to Practice ESG
Financial institutions and companies have been ignoring one of the largest operational risks to their businesses, which involves issues of an environmental and social nature. These include natural resource shortages, impacts of climate change, labor strikes, and corporate governance problems. However, with international challenges like climate change and inequality heightening, it is impossible to ignore these risks. However, some severe negligence of ESG risks caused tremendous losses in most of the industrial sectors. Companies in India: Several textile plants shut down in the province of Madhya due to acute scarcity of water—an issue that can certainly be minimised or resolved by not neglecting an environmental risk in the first instance. Similarly, industries located along the Ganges River have had heavy fines imposed on them and have ultimately been closed owing to complete and repeated negligence of environmental non-compliance.
Strikes have paralysed production in whole major manufacturing sectors, while corporate scandals have ruined the reputation of otherwise very reputable companies.
These are not isolated incidents; they are clear signals that businesses can no longer afford to be blind to ESG risks. The integration of ESG therefore allows financial institutions and businesses to find the red flags in advance and avoid the kind of costly shutdowns, legal battles, and lost opportunities they could face in the future.
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What Happens if You Don’t Practice ESG? Will Regulators Force You To?
The world is focusing on ESG practices, and regulators are upping the ante in making sure those are adhered to. All major regulatory bodies in the world are presently focusing on ESG metrics and policy tracking, and India has joined the league. This means governments across the globe already have or will have stricter ESG regulations in place, and this automatically implies that businesses must adhere to these regulations lest they face penalties and lawsuits.
The regulation of corporate sustainability reporting by the European Union, for instance, has meant that many companies must now disclose information related to ESG. In the US, the Securities and Exchange Commission is putting a tighter focus on climate-related disclosures and governance, while regulators in India are beginning to make ESG disclosures mandatory, especially for publicly listed companies. It is now time for businesses to institute these standards.
Non-compliance with such regulations leads to fines, loss of brand reputation, and lawsuits. It therefore pays to be informed about new ESG regulations and to embed them within the corporate strategy—if not a best practice, then definitely a necessity.
Why Is It Beneficial for Your Business to Practice ESG?
Sustainability is no longer just a buzzword; it’s a major market driver, especially among younger consumers. Gen Z and millennials are leading the charge for sustainability, and they’re not just talking the talk—they’re also walking the walk. These generations are increasingly making purchasing decisions based on a brand’s commitment to social responsibility and environmental stewardship. According to a survey by Bain & Company, more than 60% of consumers in India said they would be willing to pay a premium for sustainable products. Also, 52% of urban consumers would increase their spending on planet-friendly brands over the next few years. Further, 49% are health-conscious, and 43% rank sustainability as one of their top five purchasing criteria.
While currently only 5% of market share in packaged goods is consumed by sustainable products, this represents an enormous untapped opportunity for any business that wishes to embrace the ESG practice.
By aligning themselves with ESG principles, companies improve not only their reputations but also tap into the increasingly large market of consumers who are willing to pay more for a product that is both ethical and environmentally responsible.
How Can ESG Open Up New Investment Avenues?
This demand has created a huge investment gap in sustainable solutions. According to estimates, India will need $2.5 trillion for climate action between 2015 and 2030, or approximately $170 billion per year. That is a huge opportunity for businesses and investors who are willing to think out of the box and solve some of the pressing challenges in sustainability for the future.
Currently, the flows are a long way from this level and have reached an estimated US$17 billion in 2017 and US$21 billion in 2018. Therefore, there is a felt need for increased investments in green finance across renewable energy, water conservation, green infrastructure, and sustainable agriculture. Plus, the more established sectors of renewable energy, new emerging areas of opportunity are available: for instance, biofuels, carbon capture, climate-resilient agriculture, and energy efficiency for micro and small enterprises.
Furthermore, the SDGs of the United Nations represent a huge set of investment opportunities, in which the private sector alone can potentially invest over $1.12 trillion by 2030. Thus, by linking their strategies to ESG and SDGs, companies could seize such emerging investment opportunities and contribute toward addressing global challenges while attaining business growth in a sustainable manner.
What Is the ‘X’ Factor That ESG Can Provide?
Companies that have already managed to embed ESG into their operations later proved a serious competitive advantage. In particular, this is so in the investment world, where investors are increasingly considering ESG metrics for business as an indicator of a company’s future ESG performance, resiliency, and stability.
Investors are no longer focused on short-term profits only; rather, they want to be certain that the companies they invest in are sustainable, resilient, and socially responsible. To companies at a pre-IPO stage or raising capital, a good ESG strategy may just prove to be the deciding factor for investors when choosing which businesses to back.
This means that a business can base its differentiation in a cluttered marketplace on elements of ESG: reduce water consumption, improve energy efficiency, increase diversity related to gender, or make sure that executive pay is at least partially linked to the sustainability of targeted goals. This “X” factor helps the company brand become stronger and positions it as a leader in the sustainability movement.
How Does ESG Correlate with Strong Financial Performance?
One of the most importance of practicing ESG is that it goes hand in hand with financial performance. Firms with high scores in governance and sustainability metrics show higher operating profits, improved financial stability, and better market performance.
Take, for example, CRISIL’s 2022 ESG scoring exercise of 586 companies, which found that operating profits for the top 10 companies on governance—the “G” in ESG—grew at a 23% CAGR between fiscal years 2019 and 2021, versus a negative 7% for the bottom 10 firms by governance.
Companies that address environmental and social issues, such as energy efficiency, waste reduction, and diversity, generally have lower unit costs and higher profit margins. For instance, reducing water consumption and using sustainable packaging can have the dual benefit of making a business greener and operations leaner at the same time, which can enhance the bottom line.
How Does ESG Provide a License to Operate?
ESG practices show a form of “license to operate” in today’s world. Therefore, corporations could implement ESG in their operations to have long-lasting relations with key stakeholders: customers, employees, shareholders, and suppliers. If all of these groups are satisfied that the respective company does enough concerning being sustainable and socially responsible, this translates into smoother operations with fewer disruptions.
For example, employees are more likely to stay longer with companies concerned about social responsibility and sustainability, just as customers would also show loyalty to brands regarding such concerns about the environment and other ethical practices. The shareholders are also benefiting from the increased long-term value creation since companies with strong ESG practices can easily withstand external shocks.
The strong ESG framework will help create a more loyal and trusting culture, which will be very critical in ensuring that business continuity is maintained and continued over the longer term.
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Conclusion
In conclusion, the significance of practicing ESG goes way beyond issues of regulatory compliance and reputation management. It helps in managing risks, unlocking investment opportunities, improving financial performance, and strengthening stakeholder relationships. With global challenges like climate change and social inequality growing each day, companies that cannot integrate ESG into their core operations risk being left behind.
In contrast, those enterprises that can embed the principles of ESG on the board can position themselves for leadership in this sustainability revolution—to tap into new, emerging markets or attract a series of new customers and investors seeking long-term assurances. ESG is not just about doing well by the environment; it’s about benefiting your business at the same time.
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FAQs on The right Reasons to Practice ESG
Why do we practice ESG?
ESG, when practiced, offers a way of mitigating risks and unlocking growth opportunities that are at par with consumer demands on sustainability and other regulations, while its link to good corporate governance might make it helpful for long-term improved financial performance.
What’s the top reason to consider Stronger ESG Regulation?
Stronger ESG regulations mean that businesses are made to be responsible toward the environment, society, and governance for better stability in the long run with improved management of risks.
Why do you think ESG Is important?
ESG is important because it aligns business practices with global goals of sustainability, instills confidence among consumers and investors, and makes sure firms can resist the impacts of new challenges.
Why do i need an ESG Strategy?
An ESG strategy helps businesses mitigate risks, improve operational efficiency, comply with regulations, attract investment, and remain competitive in a fast-moving market.
Who Can Benefit from ESG Training?
The training in ESG will be important to be given to any person engaged in business decision-making, risk management, compliance, and sustainability efforts, so that they should have the ability to effectively integrate ESG practices into their operations.
