India’s Growth, ESG and Consumer Trends

Increasing rivalry between the US and China is giving India a new shot at boosting its manufacturing share to a targeted quarter of GDP. And there are pockets of progress. Apple Inc.’s three key Taiwanese suppliers won incentives from India to boost smartphone production and exports. The California-based company now makes almost 7% of its iPhones in India. As per Bloomberg, India’s Contribution to Global GDP (see below) in the next 5 years will rival China and the US. If India can keep growing at around 7% and its currency holds firm, it should zoom past Germany and Japan to a third place ranking by 2030.

Last month, we saw India’s historic milestone of passing mainland China’s population.  That comes just a few years after India snatched the title of world’s fastest-growing major economy from its northern neighbour. With this huge growth, we see a huge demand from the Indian consumers. Interestingly, consumers are becoming more drawn in products that are sustainable and environmentally friendly.  Demand for eco-friendly products, including organic food products, sustainable clothing, and green energy solutions. This is driven by an increasing awareness of environmental issues and a desire to reduce the carbon footprint.

There is a growing demand from Indian consumers from local companies to be transparent about their ESG practices, including their environmental impact, social responsibility, and corporate governance. This includes providing information about their supply chains, production processes, and use of natural resources.

Overall, consumers are increasingly aware of the impact that their purchasing decisions can have on the environment and society, and they are looking for products and companies that align with their values.

SEBI, the market regulator of India is seeking ESG (environmental, social, and governance) disclosures and assurance from the top 250 listed entities (by market capitalisation) for their entire value chains. After the board meeting recently, it noted that several companies have significant carbon footprints in their value chain and need to make value-chain ESG disclosures on a comply-or-explain basis from Financial Year (FY) 2024-25 and Financial Year (FY) 2025-26, respectively.

 Value-chain reporting is a challenge because the reporting company must collect ESG core data from its suppliers, and data collection, verification, and coordination is a time-consuming job. Experts believe companies are likely to push and often apply tariff or non-tariff incentives for their value-chain partners to adopt sound ESG practices, which would in turn reflect positively on their own sustainability performance.

Strong engagement with the value-chain partners, supporting them as required, and more importantly, carefully incentivising sustainability performance of the partners go a long way in creating a future-proof business.

Realising the daunting task, Indian corporates, who for the first time in FY24 will make ESG disclosure as part of the Business Responsibility and Sustainability Report (BRSR) Core, have started to handhold their supply-chain partners for collecting and reporting ESG data. Some companies have even made disclosure clauses part of their purchase agreements.

The challenge is ESG outside BRSR compliance in the MSME industry. Micro, small, and medium enterprises (MSMEs) part of the supply chains is responsible for 70% of greenhouse gas emissions and without having ESG compliances in MSMEs, one can’t expect major changes to happen. How do you educate them? There are far too many and they don’t have the necessary wherewith and capital to build an ESG mindset in the supply chain.

SEBI’s ESG regulatory framework also addresses ESG rating issues and notes that considering that emerging markets have a different set of environmental and social challenges, ESG rating providers shall be required to consider India/emerging market parameters in ESG ratings.

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