On ESG framework- This Notion Asks Us To Think Beyond Nation

Source: This post on ESG framework has been created based on the article “This Notion Asks Us To Think Beyond Nation” published in The Times of India on 26^th October 2023.

UPSC Syllabus Topic: GS Paper 3 Indian Economy — Indian Economy and issues relating to mobilization of resources.
GS Paper 4 Ethics — Corporate governance.

News: This article discusses the importance and limitations of the ESG framework, in the context of an increasing transition towards renewable energy.

Read in detail about ESG here: https://forumias.com/blog/esg-framework-in-india/

What is ESG?

ESG (Environmental, Social, and Governance) investing involves making investment decisions that consider not only conventional financial metrics (such as Return on Investment (RoI)), but also non-financial aspects related to the environment, society, and corporate governance.

ESG can help us handle various challenges in the realm of economics, healthcare, education or environmental sustainability.

What are the reasons behind the phenomena of ‘renewablisation’ (rising renewable energy adoption)?

1) Lower costs: The cost to use renewable energy sources is reducing and dropping below that of fossil-oil energy.

2) Immune to fluctuations: Unlike fossil fuels, prone to inflationary impacts, renewable energy costs remain relatively stable and are largely immune to global price fluctuations.

However, geopolitical issues and manipulation of supply chain costs by nations can reduce adoption.

What are the issues with ESG Framework?

1) Lack of ESG frameworks with all nations: Only a handful of influential nations possess proprietary ESG frameworks.

2) One-size-fits-all approach: It ignores cultural nuances, unique financial conditions, stage of economic growth, and social obligations of countries.

3) Tool of dominance and control: The imposition of ESG, without accounting for local variation, can act as a tool of exerting dominance and control rather than collaborations.

Question for practice:

The ‘ESG’ framework is regarded as key to drive the energy transition across the world. However, it is plagued by various challenges. Analyse.