ESG and India Inc.: Companies need not forego profit in order to attain sustainability goals, both can co-exist

It is universally acknowledged that pursuing ESG (Environmental, Social, Governance) goals is not only good for the planet but also good for business. Even taking into consideration just four areas - energy, cities, food, and agriculture - the gains that stand to be made, by adhering to the United Nations Sustainable Development Goals by 2030, amount to $12 trillion in additional earnings or savings. One of Infosys’ research studies from October last year shows that when investment firms used both internal and external agency ESG ratings, they outperformed the S&P 500 by earning 6.90 per cent higher returns.

Underlying these gains in financial performance is improvement across the board – in operations, talent management, employee engagement, product development, business resilience, and much more. And this is true of virtually every industry.

Gain in every domain

A sustainable practice in manufacturing is Predictive Product Lifecycle Management (PLM), which optimizes circular design and production across various stages, namely conceptualize, design, make, deliver, service, return, and end of life. For example, this uses the concept of servitisation to reduce energy consumption and waste, extend the life of a product by selling not the product itself but its performance as a service. The best-known example of servitisation comes from the aviation industry, where aircraft engines and accessories are offered at a fixed cost per flying hour. Servitisation is a win-win that gives manufacturers an additional revenue stream and their customers a way to replace high capital expenditure with manageable operating costs.

Another telling example is how companies are prioritising reskilling – of not just employees but also of underrepresented segments to create new talent pools – as part of their ESG agenda. They are taking a different approach to recruitment – hiring based on ability, drive, and the willingness to learn, rather than pure academic/work credentials. This is not only bringing greater inclusion in the workforce but also helping the companies bridge their talent deficit. Further, because these initiatives create upward career mobility, they are helping to attract and retain employees.

The pervasive use of Cloud is also working across industries to dramatically reduce energy consumption. The technology, which proved its worth and more during the pandemic by keeping life, work and business going, has quickly become an imperative for business continuity and resilience. With more industries moving product development out of data centers and into cloud so that engineers can collaborate from remote locations, their gains from operational and energy efficiency are significant.

Sustainability needs technology

As the above examples show, technology is a huge enabler of the ESG agenda. Enterprises are employing clean technologies – renewable energy, green finance, digital solutions – along with smart processes to build energy-efficient, circular, inclusive, well-governed, and resilient businesses. In most cases, these technologies work in concert to deliver the intended results.
U.S. utilities are looking to retire significant coal generation capacities by 2025 and eliminate carbon emissions by 2050. Distributed, renewable energy sources, such as wind and solar power, are key to decarbonization but are challenging to integrate with the grid because of problems such as variability, backfeed, surge in voltage, and inconsistent quality. Distribution intelligence strategies and digital solutions can help utilities by giving them better visibility and control over DERs (distributed energy resources). Artificial Intelligence (AI) technology can play a big role in orchestrating the grid to send the excess electricity from DERs to the points of demand almost in real-time.  It can make predictions based on grid data to improve system responsiveness, resilience, and reliability. In addition, AI solutions can also support decarbonization by tracking, predicting, and preventing greenhouse gases leaking from pipelines and other equipment.

Digital is circular

Digital is also a critical driver of circularity. The convergence of cloud, AI, machine learning, IoT, and other solutions is the foundation of sustainable manufacturing. Predictive PLM (mentioned earlier) needs IoT, digital twin technology, and other applications to perform simulations and what-if analyses in order to assess product performance and feed it into future design cycles. For example, GE Energy uses a digital twin of power plants to give a comparison of fuel and electricity costs so power plant operators can optimize the mix. As a result, one of its customers’ energy output improved by 2 to 3 percent, saving $15 million in each plant.

Intelligence for resilience

As one climate event after another disrupts power supply and other amenities, the inadequacy of disaster preparedness is very evident. While utilities do maintain excess capacity, the practice is neither operationally efficient nor enough to keep the grid functioning when large areas are impacted. A new efficient approach is needed to make sure energy systems are resilient in the face of extreme disruption, and that the most important consumer services are sustained, even if parts of the grid don’t work. This would not have been viable in the past. But now, there are digital solutions that can improve resilience at reasonable cost. Today, an Artificial Intelligence-based self-healing grid in Colorado’s hazardous terrains is managing to maintain supply during stormy weather and restore power almost immediately in case of disruption.

In summary

With the 2030 climate change deadline fast approaching, sustainability action is a top priority for most enterprises. The journey so far shows that ESG, besides being necessary for protecting the planet, is decidedly profitable for business, leading to improvement in efficiency, engagement, resilience, and other parameters. Technology, especially digital, is critical and indeed essential to this agenda.

Views are personal. The author is Senior Vice President, Global Head – Engineering Services and Blockchain, Infosys.
 

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