“While we can see action happening on this front, sadly there is hardly any mindful action, which to me, is a greater concern. There is so much fear in terms of the enormity of data that needs to be gathered when it comes to Scope 3 emissions, the framework, the data methodologies, and the entire ecosystem that needs to be mapped. The discussions around the associated costs are very short-sighted as on today, which really need to change as we progress,” highlights Aparna Sharma, HR Practitioner & Independent Director on Corporate Boards…
Enlighten us on the role of Independent Directors in ensuring Sustainability Reporting?
Aparna Sharma
I must admit that it is assumed that once you are part of the Board, you know what Reporting is all about. The discussion needs to start with the awareness level from across the spectrum including the Board Members. There’s great amount of confusion and lack of understanding at the Management level. Once the Board is informed and aware, the organization takes the lead in its ESG journey.
It has started off as a Compliance exercise because of the mandate from SEBI. In the rush to abide by the mandate, companies and in fact board members are not realizing that somewhere the loopholes will be caught on and then organizations might land in trouble. Simply having an ESG committee or an Audit committee doesn’t serve the purpose, there needs to be dedicated time & effort devoted to reporting the right measures.
As a positive start on this front, the Ministry of Agriculture & Farmers Welfare has developed a framework for promoting Voluntary Carbon Market (VCM) in India for the Agricultural sector to encourage small and marginal farmers to get carbon credit benefits. Introducing Carbon Markets to farmers can accelerate the acceptance of eco-friendly agricultural practices while enhancing their income. Farmers can adopt sustainable agriculture practices and get additional income from carbon credits as well as other agro-ecological benefits in terms of improved natural capital such as soil, water, biodiversity, etc.
The Framework for the voluntary carbon markets in the agriculture sector will help promote carbon market among the farming community, incentivize and finance sustainable agricultural practices. The major objective of VCM framework is to create awareness and capacity building of the stakeholders, motivating farmers to adopt sustainable agricultural practices. In the long run, this would contribute to sustainable development goals, support rural livelihoods, and promote resilience in agriculture.
There are small steps being taken in this regard, it’s nascent as far as Boards and their involvement is concerned. Organizations must realize the gravity of the matter that if the reporting is not correct, how much can it impact the organization in a negative manner.
Are we moving towards a framework which is action-oriented rather than gauging the impact?
While we can see action happening on this front, sadly there is hardly any mindful action, which to me, is a bigger concern. There is so much fear in terms of the enormity of data that needs to be gathered when it comes to Scope 3 emissions, the framework, the data methodologies, and the entire ecosystem that needs to be mapped. The discussions around the associated costs are very short-sighted as on today, which really need to change as we progress.
The Board of Directors (BoD) are the key stakeholders responsible for shaping and providing an oversight to the Governance framework of an organization. I believe they have certain key responsibilities in aligning the strategic decisions with best governance practices to meet the regulatory requirements. First & foremost, they should establish a governance framework which defines the roles, responsibilities and processes. This includes structuring the BoD effectively to oversee the various facets of the company’s governance aspects. There must be a balanced composition of independent and non-independent directors to maintain objectivity and oversight. Additionally, developing and enforcing a code of conduct is a must to uphold ethical standards across all business practices and implement training programs to reinforce these standards. BoDs must promote transparency in decision-making processes and financial reporting to build trust with the stakeholders. The organization’s whistleblower mechanism must be easily accessible to internal/ external stakeholders which will help in ensuring that the complaints are thoroughly investigated and addressed.
Risk management is a key consideration when it comes to ESG reporting norms. For this, companies should develop and implement a risk management framework to identify, assess, and mitigate potential risks. The team should regularly review and update risk management strategies. Internal controls and standard operating procedures should be laid out to safeguard the company’s assets and ensure accurate financial reporting.
All these criteria necessitate integrating sustainability principles into business practices with a focus on reducing the environmental impact of the organization’s operations and ensuring sustainable growth. These principles will go a long way in enhancing transparency in reporting.
What do you think is the crucial importance of reporting when it comes to Scope 3 emissions? How far have the Indian companies reached in this matrix?
In an increasingly interconnected world where sustainability is becoming a defining factor for business success, addressing Scope 3 emissions is not just a responsibility but also an opportunity for companies to exhibit leadership, build resilience, and contribute to a more sustainable future for all. Addressing Scope 3 emissions is a significant step because there is an increased pressure from the stakeholders, including investors, customers, and regulatory bodies, on making Scope 3 emissions a critical area of focus.
I was reading an interesting report by PwC, which mentions, “Measuring and reporting Scope 3 emissions is an effective way for companies to show stakeholders – including investors, customers and employees – that they understand their impact on the environment, and are working actively to consciously reduce their overall footprint. This presents an important opportunity for companies to proactively manage their value chain sustainability.”
The evolving global regulatory landscape mandates organizations to report their Scope 3 emissions. These dynamics make it imperative that companies have the capabilities to collect, measure, manage and report on value chain GHG emissions so that they can comply with the stringent disclosure requirements.
Talking specifically about India, governing bodies like the Ministry of Corporate Affairs (MCA), the Securities Exchange Board of India (SEBI), the Central Pollution Control Board (CPCB) and the Ministry of Environment, Forest and Climate Change (MoEFCC), have laid down several guidelines and regulations which are specific to the Indian market. Companies must comply with ESG regulations based on the jurisdiction in which they operate. These regulations and stakeholder expectations have pushed companies to embrace ESG aspects in their business strategy. As a result, Board of Directors (BoDs) around the globe have recognized ESG as an important agenda for boardroom discussions.
In a recent update, the Reserve Bank of India (RBI) has issued draft guidelines on disclosure framework on climate-related financial risks 2024, which is a mandate for regulated entities to disclose information on four major areas – strategy, key areas of governance, risk management, and metrics and targets.
What key metrics or indicators do companies need to prioritize to assess the effectiveness and impact of a sustainability strategy within their organizations?
Reporting is a great opportunity for organizations to be transparent with their stakeholders about their emissions reduction strategy and the progress they have made towards any of these goals. I believe these are some of the few fundamental questions that the leadership of organizations must deal with: How is the data reported? What frameworks are being used? Does supplier data reporting match the timeframes for their company’s reporting? Do they need to fill in gaps or make any estimations? Is supplier data complete, accurate and verified? How granular is the data? Do their suppliers have the capabilities to provide data at the product level? Can they provide inputs such as emissions by truckload, mode of transport, mileage and fuel data?
We are seeing many globally leading companies already taking significant steps to set specific targets on Scope 3, with the more advanced companies focusing on science-based initiatives. Scope 3 emissions measurement requires top-to-bottom approach wherein the top management needs to lead from the front and highlight its far-reaching impact that every business vertical has – be it supply chain or product development or the reporting, tax, marketing departments. Once the leadership sets the right example, it’s only a matter of time that the rest of the employees follow suit.
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