Measures organisations can take to redefine and enhance consumer trust

With the Indian consumer market experiencing remarkable growth, India is set to play a pivotal role in the global consumer landscape. Businesses are expected to take cognizance of the way they conduct business and how it impacts the society at large. Environmental, Social and Governance (ESG) factors have emerged as key pillars that influence reputation, resilience, and long-term success of an organisation. As organisations grapple with the challenges of sustainable development and ethical operations, ESG integrity emerges as a critical touchstone for gaining consumer trust. 

Non-compliance of “ESG” regulations may result in significant penalties and reputational loss due to the heightened expectations for corporate responsibility on environment and social equity. As per KPMG in India’s POV, ‘Redefining Consumer Trust’, enforcement by Indian regulators is expected to become stricter as the “ESG” environment matures in India. Organisations need to be proactive in effectively mitigating the “ESG” risks to ensure long-term sustainability and enhance financial performance. But how can they mitigate ESG integrity risks? As a first step, organisations can include mitigating the “ESG” integrity risks in their existing risk management framework. Having a dedicated “ESG” risk oversight structure will ensure adequate “ESG” compliance and remediation measures for “ESG” related incidents”.

• Risk management framework: Design a comprehensive risk management framework and strengthen processes relevant to maintaining ESG data integrity, ESG reporting metrics and ESG related compliances. Businesses should foster a culture that promotes transparency, accountability, and a strong sense of ethical values. This can encourage employees to make ethical decisions, prioritise social responsibility, and maintain stringent governance practices.

• Third-party due diligence: Third-party relationships may create a variety of risks and cyber threats for companies, which can impact brand and reputation. Including ESG parameters as part of due diligence and background checks conducted for employees and third parties associated with the organisations will be key in Identifying and mitigating risks.

• Early warning signal mechanism: Technology is key when it comes to addressing integrity risks. Developing a tech-based early warning signal mechanism and conducting periodic proactive reviews to detect any red flags will help in identifying ESG related non-compliances or breaches.
  
  
• Training and awareness: Organisations must hire employees from diverse backgrounds, having varied knowledge of industries, key players, as well as key regulations. Further to this, providing trainings and conducting awareness workshops for employees and third parties associated with the organisation will be fruitful in making them aware of the applicable ESG regulations and repercussions of non-compliance.

• Root-cause investigations: Conduct investigations of ESG related allegations, such as greenwashing, reporting manipulation, regulatory breaches, misuse of grant funding, general ethics/compliance violations and whistleblower complaints.

While the ESG landscape is still evolving in India and across the globe, multiple organisations have implemented best practices for responsible sourcing, which set clear requirements for third parties associated with them on various parameters such as traceability, labour practices, and environmental impacts. Innovative approaches such as blockchain technology are being explored to enhance supply chain traceability and integrity and to track food products from farm to store, improving food safety and transparency.

With the ESG regulations becoming progressively stringent, organisations must implement robust ESG governance framework, strengthen supply chain traceability and foster a culture of transparency and accountability throughout the product lifecycle. The advent of social media has led to consumers exercising greater scrutiny while taking purchasing decisions, with a preference towards ESG oriented organisations. Hence, a stronger focus towards ESG compliance would ensure long-term profitability, enhance consumer trust and sustainability for organisations.

A version of this article was published by Financial Express Online on Sep 19, 2024. The same can be read here