ESG consultancies and services on the rise as companies rush to get sustainability tag
Jun 19, 2024
Synopsis
Emerging consultancies and ESG services companies have a lot of opportunities but struggle due to lack of awareness and data.
Indian companies are increasingly adopting environmental, social and governance (ESG) standards, and it is leading to the emergence of many new consultancies and firms in this space.
According to Noida-based market researcher UnivDatos Market Insights, the country’s sustainability consulting and ESG market was valued at $255.21 million in 2021. This number is projected to grow at a CAGR of 7.42% from 2022-2030.
Presenting an understanding of the reason behind this shift, Rathin Kukreja, Senior Practice Leader & Director-Consulting, CRISIL Market Intelligence and Analytics, says the government and regulatory bodies have been increasingly focusing on sustainability and corporate governance. “Policies such as the Business Responsibility and Sustainability Report (BRSR) mandated by the Securities and Exchange Board of India (Sebi) have driven companies to adopt ESG practices. Similarly, RBI (the Reserve Bank of India) and IRDA (the Insurance Regulatory and Development Authority) have also come up with disclosure mandates for FIs on climate risk,” he says.
Anu Chaudhary, Partner, Global Head of ESG Consulting of Gurugram-based Uniqus Consultech, says the ambitious target of major countries to achieve net zero emissions by 2050, coupled with the outcomes of COP 28 (UN’s Conference of the Parties), has highlighted the importance of sustainability to governments and businesses globally. A growing number of domestic and international investors are asking companies to demonstrate strong ESG performance. Investors are increasingly considering ESG criteria in their investment decisions, which pushes companies to seek expertise in this area.
“There is a growing expectation from other stakeholders as well, including customers, employees and the general public, for companies to operate responsibly and sustainably,” says Kukreja.
Awareness in business
Companies are also becoming more aware of the long-term benefits of sustainable practices. There is recognition that strong ESG performance can lead to better risk management, enhanced reputation and potentially superior financial performance. “Financial institutions are increasingly integrating ESG criteria into their lending and investment processes, encouraging companies to enhance their ESG performance to secure financing,” says Kukreja.
Shaayak Chatterjee, co-founder of Bangalore-based Breathe ESG, explains that between 2020 and 2022 alone, ESG reporting among India's top 1000 companies surged by over 160%. “This growth was further catalysed by then Finance Minister Nirmala Sitharaman, who in 2023 emphasised the need for chartered accountants to incorporate carbon, CSR and ESG practices into their services. This aligns with the shift towards a new economic paradigm fuelled by technology-driven startups and industries transitioning to modern operational frameworks. ESG reporting is not limited to listed companies with exporters and suppliers also having to adopt ESG practices to preserve their competitive advantages,” he says.
Both Breathe ESG and Uniqus was formed in 2022.
Clientele and fees
As per a recent report by foundit (Monster APAC & ME), salary of an ESG consultant ranges from Rs 5.4 lakh to Rs 15 lakh in India.
CRISIL’s Kukreja says that services such as BRSR and sustainability reporting are priced lower as compared with strategy solutions such as climate risk assessment, supply chain assessment, decarbonisation road maps and life cycle assessment (LCA). Consultancy fee is also a function of sector, number of locations of the organisation as well as whether the services are sought on standalone basis or on consolidated basis (including subsidiaries, joint ventures, etc).
Uniqus serves a global clientele across the Middle East, India and the USA who come from various sectors such as IT, financial services, healthcare, FMCG, real estate, technology, PE/VC funds, aviation, apparel and chemical industry.
“A company just beginning its ESG journey will have diverse needs, such as setting up processes for data collation, training, and capacity building, compared to a company advanced in the sustainability journey, which may have more complex requirements. Whereas, a larger company with a global supply chain may have more advanced needs, such as decarbonisation strategy and supply chain evaluations. The combination of all these factors and the scope of services determines the overall charges for ESG consultancy services,” she says.
Even for Breathe ESG, whose clients include players from real estate, manufacturing and steel, the pricing of ESG consultancy services can significantly vary across the industry.
Top-tier consultants may charge premium rates for extensive ESG integration, while smaller players might offer partial services at substantially lower costs, Chatterjee says.
“To address this disparity and provide comprehensive value, Breathe ESG has developed a four-tier pricing structure. Each tier is tailored to factors such as the number of assets owned, employee headcount, desired depth of carbon emissions calculations, and compliance with data security regulations. This approach not only ensures that each client receives the appropriate level of service and features but also aligns the cost with the scope and impact of their specific ESG initiatives,” he says.
Challenges
Surely, the ESG services are growing but consultancies have their own share of struggles. These include, awareness and understanding, data availability and quality, regulatory challenges, among others.
Both Kukreja and Chaudhary say that many companies struggle with collecting comprehensive and accurate ESG data. The quality of ESG data can be poor, and there may be issues with reliability and verification.
“Many companies need help to accurately measure and report ESG data and metrics, specifically Scope 3 emissions, which involve indirect emissions from the entire value chain. Unlisted suppliers often need mature ESG data collection systems and processes, which can pose a challenge in estimating the net emissions of the parent company,” says Chaudhary.
In terms of awareness, there is a lack of understanding of ESG principles and their importance, says Kukreja. “There is a need for more education and training programmes to help businesses understand and implement ESG practices effectively. There is a shortage of skilled professionals with expertise in ESG, making it difficult for the organisation,” says Kukreja.
The regulatory landscape for ESG is rapidly evolving, which can create uncertainty for companies trying to stay compliant. Ensuring compliance with ESG regulations and guidelines can be challenging, especially for smaller firms with limited resources.
Navigating the evolving regulatory requirements can be daunting for many businesses, says Breathe ESG’s Chatterjee.
There are challenges related to cost considerations as well, Kukreja says that implementing comprehensive ESG strategies and reporting can be expensive, particularly for smaller companies. “Companies often struggle to see the immediate financial benefits of investing in ESG. Many companies still perceive ESG and sustainability as a compliance cost.”
In another interesting challenge, Chaudhary points out that the industry faces characteristic challenges in India. ESG responsibilities within organisations reside with multiple stakeholders.
“In some organisations, the investor relations team has ESG responsibilities, and within some organisations, the strategy teams steer the ESG agenda. This requires consulting companies to tailor the requirements and delivery models to cater to the varying needs of organisations,” she adds.
[The Economic Times]
