The Missing ESG Story

These are hard-to-abate sectors. Cement has a general reputation as a dirty, polluting industry. Mining is considered a sector that contributes heavily to carbon emissions and environmental damage. The transport sector is seen as a guzzler of carbon-emitting fuel. Generally, civil society doesn't hold a favourable opinion of these sectors. But these sectors are fundamentally important for supporting human life. The role of mining, in particular, is key to decarbonisation and the energy transition — be it renewable power, battery storage, or other efforts.

We know good mining companies are adopting responsible mining practices like economic empowerment of communities, inclusive growth, zero waste, water positivity, the introduction of EV mining equipment, use of renewable energy, adherence to human rights, health and safety, and global best-practice policies.

At Vedanta, we followed benchmark practices and were rated a top-tier mining company by global rating agencies like DJSI, Sustainalytics and MSCI, among others. We also became the first Indian company to become a member of ICMM. Similar best practices were adopted during my tenure at Ambuja Cements and Hindustan Zinc.

My advice:

• Build ESG into the business plan, short term and long term
• Make ESG the DNA of the organisation
• Declare your plan, and measure it every quarter
• Create the belief that good ESG is good business, short term and long term
• ESG improves both the bottom line and the top line

As explained above, genuine efforts will yield good and credible results. We need to embed ESG into our business plan and make it an integral part of decision-making. Commercial returns are definitely visible through good ESG performance — be it operational efficiency, a purpose-driven organisation, waste reduction, social licence, employee engagement and motivation, risk reduction, long-term sustainability of the organisation, investor confidence, cost of borrowing, market capitalisation, reputation, and more.

The belief of the board and management that good ESG performance is good sustainable business — that is the key.

Boards generally focus on near-term operations and financial results, and tend to overlook the long-term foundation of the organisation. Looking at the criticality of natural resources — especially for self-reliance in energy security, given geopolitical tensions and the need to reduce imports — it is increasingly becoming critical for boards to focus on building stakeholder confidence, sustaining social licence to operate, monitoring ESG metrics (short-term leading indicators cascading into long-term outcomes), managing reputation risk, and managing the narratives around all these factors through corporate communication.

Clear and transparent communication on commitment and performance is becoming a requirement from regulators, rating agencies and stakeholders alike.

There is a greater focus emerging on Scope 2 and Scope 3 emissions. In fact, responsible buying and selling is becoming an integral part of ESG. The reporting requirements of all global rating agencies now call for reporting across the complete value chain. Organisations are being assessed and rated accordingly.

The global power shift is increasingly driven by energy security, critical minerals and resource control, as geopolitical tensions reshape supply chains and economic priorities. This has already exposed the vulnerability of nations heavily dependent on external energy and critical mineral supplies, and on strategic trade corridors. The geopolitical centre of gravity is gradually shifting from financial dominance to resource and energy control.

India, the world's third-largest crude oil consumer, imports nearly 90% of its crude oil requirement. Nearly 45% of that crude passes through the Strait of Hormuz. Every dollar rise in crude oil prices widens the trade deficit and adds to inflationary pressure. We cannot build our economic sovereignty on fragile energy security.

Critical minerals are becoming as strategically important as oil. Countries with secured internal resources or supply chains for critical minerals will enjoy geopolitical and economic leverage over other nations. Sectors like renewable energy, battery storage, electric mobility, defence, semiconductors and advanced engineering will need sustained access to critical minerals. Mining should be viewed as a strategic economic pillar rather than an isolated sector. We must accelerate mining reforms and build an ecosystem where mining is not considered a stigma.

As a country, we must truly appreciate the importance of ESG as a business foundation. As an industry, we must believe in responsible business, and believe that businesses whose foundation is built on ESG principles are the ones that will stay relevant and endure. There are enough examples now to prove that businesses embedded in these principles do better on financial performance, brand reputation, access to cheaper capital, better global ratings, employee happiness and social licence.

We must create a short-term and long-term vision integrated into the business plan, declare it to the external world, measure our performance against it, and report to stakeholders on our performance against our plan and commitments for the next quarter and year, leading us toward our short-term and long-term targets.

I feel the realisation across industry and country that ESG is a genuine commercial asset is building up. There are frontrunners as well as laggards. But there are enough examples of industry players who have led by example and can be considered leaders.

Civil society, company boards, government and regulators all have a role to play in creating the right ecosystem — an environment where a support system for small players, MSMEs and start-ups is created. There are enough examples and success stories which could act as benchmarks and learning platforms to bring about perceptible and credible change.