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Sustainable Finance: Merging Profitability With Environmental And Social Responsibility

Sustainable finance is no longer optional, with ESG factors becoming essential for businesses. CFOs play a key role in balancing the cost and benefits of sustainability

In the world of finance, the integration of Environmental, Social and Governance (ESG) factors into business strategies is no longer a choice but a necessity. Stakeholders, government bodies, consumers and shareholders are all keeping a keen eye on businesses, demanding the incorporation of sustainable practices. The pressing question arises: “How can ESG be integrated into existing business practices?”

“Chief Financial Officers (CFOs) play a pivotal role in this transition. The first step lies in defining what ESG means for the organisation, followed by a meticulous assessment of the associated costs,” according to Mukti Hariharan, Chief Financial Officer, Lenskart.

As Mukti emphasised, “You will not be able to incorporate sustainability if you are not able to establish a return on investment.” Striking a balance between cost and benefits is essential to offer affordable, sustainable products to customers.

PK Hari Hara Subramanian, CFO, Head-GBS & full-time director, Cognizant Technology Solutions, added a distinct perspective to the ESG equation, defining it as a means to address exploitation, selfishness and greed. In his view, exploitation pertains to the environment and nature, necessitating action to mitigate harm. Selfishness, on the other hand, is countered by contributing to society through social causes, ultimately leading to a sense of governance to curb unrestrained greed. “Making profits is fine, but some limits are required and that’s where governance comes in,” he asserted. The growing importance of ESG can be attributed to the evolution of society and the ever-increasing emphasis on consumerism, especially among the newer generations. Stricter regulations have further compelled companies to embrace ESG practices.

Romit Pareek, CFO & Head Corporate Development, GOQii, underscores the growth in sustainability discussions, among S&P 500 companies, from 20 per cent in 2011 to a staggering 90 per cent in 2019. He emphasised the significance of calibrated measures and aligning with the United Nations’ Sustainable Development Goals (SDGs) to create a common language for ESG. Companies, in their ESG journey, must thoroughly evaluate the 17 SDGs, identify the relevant points for their operations and translate them into actionable ESG objectives

When it comes to measuring and reporting the impact of sustainable finance initiatives, P K Hari Hara Subramanian underlined the vital role of Chief Financial Officers (CFOs). While many mechanisms exist for measurement, the true focus lies on the “social return on investment,” which quantifies the ROI for social causes, often referred to as SROI.

Shifting to the critical aspect of attracting investors through ESG-aligned financial activism, Rohit Pareek highlighted the dramatic rise of ESG-focused global assets under management (AUM), with projections exceeding 20 per cent by 2026. He noted that certain funds are now taking a proactive stance by shorting stocks that perform poorly on ESG criteria. The investor mindset has evolved significantly, making it imperative for companies to present compelling data metrics aligned with the 17 UN SDGs to attract investment.

Mukti Hariharan reinforced the absolute importance of placing ESGs at the forefront of investment strategies. Investors now view ESGs as non-negotiable when considering investments. The future of finance is decidedly leaning towards sustainability, with ESG factors becoming a driving force for responsible and profitable financial practices.