A case study of Reliance industries: systems approach to environment, social and governance (ESG)

Since the stakeholder theory has been put forward - business sustainability has been a trending practice in businesses, banks and corporations.The concept has started from the World Commission of Environment and Development with the word Sustainable Development. This term has also branched off to corporate social responsibility (CSR). 

The need for Environmental, Social and Governance in businesses

Corporate social responsibility is when a business focuses on areas such as social policy, healthy competition, anti-corruption governance system, fair trading, science and technology, and human rights. This practice for over 4 decades aims to provide solutions between social and economic performance and offering vital implications for academic scholars, community, and business practitioners. Most industrial businesses and refineries need to restructure their business model and look at their impact on climate change, environmental degradation and global warming. There is urgency for businesses to take part in environmental actions and minimise their environmental threats. Currently, academic studies are moving towards corporate social responsibility in the investment decision making process. And joining CSR with ESG and abiding by Modern Index Strategy Indexes (MSCI). The main focus for these businesses is the social and the environmental aspects. When there is a focus on ESG, there is an investment return. Companies believe that ESG is the correct pathway and hence have adopted this practice. Surprisingly, Indian companies have become aware of their social responsibilities and are now getting more involved in ESG related activities. Since ESG looks into aspects of the environment, social and governance there has been a suggestion to have these aspects as non-financial reporting. Stakeholders however demand that these three factors must be included in non-financial reporting. A combined group of shareholders have mentioned that ESG is able to increase profitability in a company. 

The importance of ESG in Indian companies: a case study

The study was researched by Dr. MonicaSinghania Dr. NehaSaini has the objective to analyse the evolution of ESG disclosure practises in Indian company and gauge the effectiveness of resulting responsible actions by all social actors from such practices, through an assessment, accreditation, and national ranking system for ESG disclosures and sustainability.” The results show that companies need to reach sustainability and need to have strategies in place to do so. Further, it has been mentioned that even though a company is ESG compliant they still might be impacting the environment through pollution. The study looks into ESG from a systems approach. Moreover, firms need to disclose their ESG practices through increasing their transparency, and have a popular nudge in the face of their stakeholders.

The insights of the Indian company RIL

RIL, the Indian company has the following initiatives involving the energy sector, water management, biodiversity, health care, rural infrastructure development, skill development and education. A systems approach was analysed in RIL and it is known that at lower costs, sustainability firms are able to achieve a higher revenue. The article defines a system approach as: “a holistic approach to problem solving that involves formal consideration of select parameters.” A systems approach is able to give a holistic view of a company's commitment towards ESG. 

The results were sorted into tables and analysed the following headings:

1. “The General Systems Model for ESG Disclosures and Sustainability”

2. “Energy Conservation Initiatives undertaken by RIL under Environmental Criterion”

3. Energy management

4. Waste gas management

5. Initiatives and outcomes

6. Electricity saving

7. Biogas generation

8. GHG emission reduction

9. Paperless channels of communication

10.  Awards for initiatives

11.  CO2 per annum 

12.  Certified emissions reduction

13.  Water management

14.  Healthcare

15.  Education 

16.  Skills development

17.  Governance criterion

18.  Disaster management

19.   Technology

The conclusions in the study

A company should not only look into profit maximisation but must also look at the environment and society. It is only then that a company will enjoy the luxury of being sustainable. An example of a company that is on par with sustainability is the “Reliance Industries Limited have been indulging in such sustainable activities and been reporting their performance on an annual basis.” RIL mostly focused on the energy and water sector. It has been observed that RIL got an ESG score of 64 which is below the average performance of the other top 10 companies in India. Corporate social responsibility has now updated in looking into the environmental, social and governance indicators.