In recent years, Environmental, Social, and Governance (ESG) practices have gained increasing importance across all sectors. What began as a good-to-have trend has now become mandatory for companies to integrate into their business strategies. With consumers, investors, government bodies, and regulatory agencies concerned about the increasing carbon footprint and the adverse effects of climate change, ESG has become a crucial framework for holding companies and nations accountable for their societal and environmental impacts.
The automotive industry has historically been a significant contributor to socioeconomic progress and GDP growth. However, like many industries, it faces environmental challenges due to its energy-intensive processes and stages, such as parts production, assembly, and painting. Cognizant of this fact, the automotive manufacturing sector has been proactively seeking ways to reduce its environmental footprint. Adopting ESG practices gives it an opportunity to not only deliver on its environmental, social, and sustainability responsibilities but also to drive long-term business success.
Deep-reaching changes to business models and operations
The automotive industry, like many others, needs to undertake a deep-reaching ESG transformation, not just a mere facelift, to sustain and drive growth. Many of the leading players in the industry are reevaluating every aspect of the business – from design, engineering, manufacturing, and shipping, to how vehicles are operated, serviced, and dealt with at the end of the product life cycle. ESG guidelines help OEMs integrate environmentally friendly measures into their business models and operations. Today, automakers are investing substantially in R&D for EVs and fuel alternatives such as biofuels and hydrogen fuel cells. They are also implementing energy-efficient manufacturing processes and adopting sustainable sourcing practices.
Technology, if used well, can be a powerful enabler of change, and automotive companies are exploring ways in which they can best leverage Big Data, IoT, AI, and Machine Learning to drive their ESG agenda. And although the level of adoption of these technologies varies across companies, the objectives are often the same – to make data-based decisions, improve operational efficiencies, reduce costs, and enhance the sustainability of the company’s operations. These technologies also help in reducing waste generation, energy consumption, and carbon emissions. For instance, AI-powered predictive maintenance can optimise equipment performance, thus reducing energy wastage and extending machinery lifespan. IoT sensors can monitor and adjust energy consumption in real-time, ensuring that resources are used efficiently throughout the production process.
Creating positive social impact
The automotive industry in India creates direct and indirect employment opportunities for millions of people. EGS principles require that companies ensure fair labour practices, safe working conditions, and employee welfare programs. The industry can improve both workforce productivity and employee loyalty by offering timely and substantial support in crucial areas such as education, healthcare, career progression, and personality development. The concept of “corporate social responsibility (CSR)” has become much broader in its definition and inclusive in its scope over the years. Today, CSR is not just a ‘good-to-do’ element of business but is essential for the company to remain relevant and respectable in the eyes of its stakeholders, partners, and investors. By embracing social responsibility, the automotive industry can contribute to inclusive growth and overall well-being of the society it is trying to serve.
Strengthening governance and ethical practices
Effective corporate governance is necessary for ensuring the continued success and reputation of any company. There can be no tolerance for fraud, corruption, and unethical practices. ESG guidelines promote transparency, accountability, and ethical behaviour – all of which strengthen corporate governance and safeguards the interests of stakeholders. This also enhances investor confidence, attracts investments, and fosters long-term growth.
Implementing ESG best practices, while it is the individual responsibility of every organisation, calls for support and collaboration from the company’s employees, vendors, partners, and stakeholders. There is growing awareness – and more importantly, growing willingness – amongst them to take the necessary actions. Together, they can contribute significantly to India’s green growth and improve the industry’s competitiveness and profitability. India’s automotive industry is one of the pillars of the economy. We need to strengthen this pillar and its foundations so that it may support the ambitions and efforts towards a Bhart that’s not only “viksit” but also sustainable. And ESG offers useful guidelines for doing exactly that.
