India’s B-Schools are equipping future executives with ESG training

This isn’t really a setting to teach balance sheet management or profit optimization. Instead, Rai lectured on responsible business, sustainability, and environment. At times, he would walk the students to an organic garden within the campus to talk about issues that are increasingly becoming relevant in a world trying to transition to greener ways of doing business.

“We as a business school are driven by three mission phrases—contextually relevant, world class and socially conscious," Rai said. “The socially conscious aspect, we believe, is a differentiator for us. Gradually, there is a realization that stake holders are equally important as stockholders across business schools," he added.

B-schools are responding to a broader trend: environmental, social and governance (ESG) issues are becoming mainstream in corporate boards. While previously the focus was on achieving economies of scale and improving return on investment with an eye on improving a company’s profits, the changing ecological realities, the need for regulatory reporting around ESG, and a growing demand from investors and consumers to know a firm’s ethical practices is pushing the demand for a new cadre of managerial manpower.

In India, market regulator Securities and Exchange Board of India (Sebi) has proposed a new reporting framework called the Business Responsibility and Sustainability Report (BRSR) for the top 1,000 listed companies. The stated goal is to establish a link between financial results and the ESG performance. While such reporting is voluntary in 2021-22, it is expected to become mandatory from the year after. Once implemented, companies will have to make disclosures about a range of environment and social-related measures, including resource usage, emissions and waste management, diversity and occupational health. Meanwhile, younger companies are showing the way. Food delivery firm Zomato, for instance, said that it would convert its entire delivery fleet to electric by 2030. That makes a fuel-guzzling business more environment friendly.

No doubt, B-schools are prepping budding managers to learn about the interconnections that tie businesses, communities and environment together, and how it impacts the entire value chain. “Management education is starting to go beyond profit maximization. Instead, there is an increasing focus on social purpose, including sustainability and ethical corporate governance practices," said Harivansh Chaturvedi, director at the Birla Institute of Management Technology.

“In India and world over, ESG is gaining impetus. As industries and financial institutions adopt new realities that are in sync with environment and inclusivity, it is increasingly becoming the responsibility of business schools to adopt such practices, groom manpower that understands the nuances and its larger impact on companies’ bottom line, branding and overall society," said Tata L Raghu Ram, an associate professor at XLRI Jamshedpur.

B-schools are not only offering courses in sustainable management, but they are also trying to become greener themselves—more of this later. Meanwhile, some businesses are pushing the sustainability agenda even without an immediate compliance burden. That’s perhaps because many of them are facing commercial losses due to non-financial factors that are beyond their immediate influence.

The imperatives

What are the non-commercial factors? Natural disasters, such as floods, are one. On 21 July, around 100,000 people had to be relocated from the central Chinese city of Zhengzhou, known for producing Apple iPhones. Heavy rainfall led to floods and deaths. The fact is extreme weather events such as this are becoming common everywhere in the world.

“Climate change has made extreme weather events like heat waves and floods more frequent and more deadly in the past 20 years," Greenpeace East Asia climate and energy campaigner Liu Junyan was quoted saying in a Bloomberg report. “Recent events in Henan, along with North America and Europe are all wake-up calls reminding people of the climate change crisis," she said.

The World Economic Forum, in a 2020 note, stated that worldwide economic damage from natural disasters in 2018 was around $165 billion, and 50% of that total financial impact was uninsured. “Over 200 of the world’s largest firms estimated that climate change would cost them a combined total of nearly $1 trillion in the case of non-action in the recent future," the global body had said.

With commercial losses being increasingly attributed to non-financial factors, industries and financial institutions have started valuing ESG factors more. And terms such as ‘‘stake holders’ capitalism’’ and ‘‘conscious capitalism’’ are no more fancy phrases—they are new realities.

Businesses, meanwhile, do have the commercial imperative in mind, too. Gopal Sarangi, an assistant professor at the TERI Institute of Advance Studies in New Delhi, points to an economic need. “The credit rating of a company is getting directly and indirectly impacted by its ESG performance," he said, adding that industries require more managers who have the knowledge and specialization to understand ESG in the framework of their operations. “Also, they should be able to integrate ESG goals with the company’s performance and the wider corporate strategy."

Rating and research firms are, indeed, getting active. On 28 June, Crisil Ltd launched ESG scores for 225 companies across 18 sectors in India, in line “with its mission of making markets function better". Information technology (IT) companies and financial firms had high overall ESG scores because they use lesser natural resources, resulting in lower emissions, waste generation and water usage. In contrast, oil and gas, chemicals, metals and mining, and cement companies had lower ESG scores—quite intuitive since these sectors use a lot of natural-resources, and therefore have higher emission levels.

“ESG is already playing a material role in the decisions of governments, regulators, investors, lenders and corporates. This will not only transform the investment management industry, but also redefine corporate India’s approach to risk management for sustainable value creation," Ashu Suyash, managing director and chief executive of rating agency Crisil Ltd, said while announcing the ESG scores. “Our survey shows that over 80% of issuers and institutional investors intend to integrate ESG in their decision-making," she added.

People who work around the environment and related issues say more sectors are now complying. Chandra Bhushan, an environmentalist and founder of International Forum for Environment, Sustainability & Technology (iForest), said there are firms who are serious about the environment and those that “will do green washing". But he does see firms active in energy, agro-consumer staples and food sectors becoming conscious about climate and water issues. “That’s because climate and environment issues have a direct bearing on their bottom line," Bhushan stressed.

The B-school way

So, what are the B-schools teaching? There are many approaches. IIM Indore has a course curriculum, of course. But it also exposes students to sustainable development goals (SDG), rural life, and sustainable practices at the campus—the school uses renewables to meet part of its energy needs. While at least 10% of the energy demand is now met through solar power at IIM Indore, at XLRI, Jamshedpur, nearly 30% of the energy requirements are currently met from solar power and a biogas plant. XLRI aims to become carbon neutral over next three to five years. The newly operational BITS School of Management has set a target to become a “zero carbon footprint campus" when its permanent campus in Mumbai is ready in the next two to three years.

SDGs are a set of 17 interlinked global goals that were set in 2015 and include issues such as hunger, poverty as well as affordable and clean energy. Understanding these goals wouldn’t be possible without developing an understanding regarding rural issues among urban MBA students. IIM Indore director Himanshu Rai said that about 600 of his management students go to 100 villages in Madhya Pradesh to spend time and understand about the local problems. This helps them develop empathy and compassion. The pandemic has disrupted field visits this year, but Rai said students were asked to do a project on rural schooling by connecting with villagers over the internet and telephone.

Similarly, Birla Institute of Management Technology in Greater Noida, requires students to visit rural Haryana to learn about rural challenges such as depleting water table, supply chain constraints and hurdles in e-payments. The field work is part of a course curriculum around ethical business, inclusive and sustainable business management.

IIM Lucknow also offers an MBA in sustainable management. Amity Business School in Noida has started an MBA program in Natural Resources and Sustainability. Several other schools—Jamanalal Bajaj Institute of Management in Mumbai, IIFT Delhi, IIM Rohtak, IIM Kashipur, Xavier Institute of Management Bhubaneswar—also teach sustainable management.

At IIM Calcutta, sustainability is being embedded into most courses. “For example, if you are teaching corporate finance, then you can’t ignore internal carbon pricing (a monetary value on greenhouse gas emissions). And in human resource management, one has to incorporate re-skilling of employees getting laid off as part of social responsibility. There is a growing interest among students on CSR, sustainability and ESG," Runa Sarkar, an associate professor at IIM Calcutta, who specializes in the economics of corporate environmental strategy, said. Sarkar added that some of the larger corporates are adopting internal carbon pricing mechanism through which they are evaluating investments for new projects, and its long-term impact.

Jobs of the future

Why are students interested in sustainable management studies? There are two reasons. Youngsters are now facing the impact of climate change themselves—many of them have experienced environment-led disasters such as floods and cyclones, more than their previous generations did. Second, there is growing awareness on the regulatory requirement and the investors’ demands, said Jagdish Rattanani, a professor at Mumbai-based B-school SPJIMR (formerly SP Jain Institute of Management and Research).

Nevertheless, the fact is that many jobs of the future will require hordes of managerial talent who understand ESG. It’s a great career opportunity. Aditya Shelar, a student at IIM Lucknow, thinks that businesses in the future will think beyond numbers, and they would need people who understand a range of issues. “For a student like me who has come to pursue sustainable management after working in finance and investment banking, the options are varied," he said. “I can work in impact investment, ESG evaluations, government advisory consulting. Water management is emerging as a big sector and several of my seniors are working in this space with different state governments," he explained.

The transition to electric vehicles, higher solar power adoption, green practices in real-estate as well as carbon-neutral policies will all require manpower that drive these shifts. Chandra Bhushan of iForest pointed out that since large corporates like power utility firm NTPC Ltd are venturing big into green business, there would be a need for specialized manpower or people who are aware about environment. This month, NTPC Renewable Energy Ltd announced that it has won the bid to set up a 450-megawatt solar power project at Shajapur solar park in Madhya Pradesh.

Investors apart, even consumers appear to be pressuring firms at this point. Pallavi Srivastava, founder of ‘Our Better Planet’, an online shopping platform, said consumers are now playing a big role in deciding ethical business strategies. Some firms want to evaluate if their manpower is conscious about ethical sourcing, environment preservation, SDG goals like equality at workspace, the side effects of child labour and fair wage. All this will fuel demand for more courses in B-schools.

“Environment and sustainability will have to be embedded in both corporate thought and actions. It’s a requirement for branding, for raising funds, and to capture young and aware consumers. Institutions will increasingly adopt that in the classroom and beyond," said Gopal Sarangi of TERI Institute of Advance Studies.