The rapid evolution of Environmental, Social, and Governance (ESG) reporting from a mere "checkbox" exercise to a vital component of any Company's operations has been a major factor in how businesses have changed their perspective and interaction with their stakeholders. ESG reporting is now viewed as a key element of a business's standing and acts as the basis of its long- term value creation and stability. This transformation puts Indian businesses in a strong position to rally the others by setting the standard for accountability, transparency, and purpose through ESG reporting. With the implementation of Business Responsibility and Sustainability Reporting (BRSR) by Securities and Exchange Board of India (SEBI) regulations, ESG reporting is now mandatory for the top 1,000 Indian companies that are listed. But when it comes to the competitive advantage for ESG reporting that results in superior business performance, it is not just about checking regulatory boxes,  it is about how that can be used for corporate governance, as well as for aligning business strategies with sustainability efforts. The companies that integrate ESG factors effectively can benefit from reduced capital costs, building consumer confidence, enhanced business performance, and superior employee attraction and retention skills, which improve their long-term survival chances. Why ESG Reporting Has Become Business-Critical Business Imperative Financial reporting, while still necessary, does not offer a full view of an organization's performance. A lot of the current business environment is determined by issues such as the scrutiny of supply chains, expectations of society, risks related to climate, and problems concerning governance. ESG reporting, therefore, is the instrument that closes the gap by providing data on a Company's environmental impact, social relations, and ethical behavior. Good ESG practices are often linked to better performance over the longer term. Investors are using sustainability metrics more and more often within their decision-making processes. Companies with credible ESG disclosures have a greater likelihood of being able to attract long-term, socially responsible capital. Supporting Risk Management and Operational Resilience  ESG reporting plays a key role in the risk identification and mitigation process. Transparent and consistent disclosures enable companies to spot potential risks well ahead of the time when these risks become a significant challenge. Companies which are vigilant about ESG metrics tend to be in a stronger position. The recent geopolitical events have served as a proof point that corporations with a robust ESG framework are the ones exhibiting resilience, swift adaptation, and maintaining the trust of their stakeholders during crises. Moreover, ESG reporting drives real operational upgrades. By zeroing in on energy use, resource efficiency, health and safety standards, and community ties, companies often uncover big wins like cost savings, smoother processes, and fresh paths to sustainable innovation. Building Stronger Stakeholder Relationships Effective ESG reporting can supercharge stakeholder relationships by building customer trust, boosting brand strength, and sparking higher employee engagement especially among younger workers. Regulators and society see it as a clear sign of solid governance. Since India has committed to attain net zero emissions by 2070, it becomes even more important for Indian companies to make a shift towards tough sustainability targets. The bigger and higher performing companies are actively embedding ESG information within their business strategies, and adopting the globally recognized standards like GRI, TCFD and ISSB. The Future of Indian Businesses ESG reporting is full of value for Indian companies but to really tap that value they have to go beyond a fragmented or compliance driven approach. This means: The development of a corporate strategy incorporating ESG factors within a decision-making process. The use of adequate data management systems promote accuracy and consistency. Relying on independent assurance to enhance trust and credibility. Transparency regarding the progress and challenges being faced, and simultaneously, staying away from greenwashing. Carrying out continuous communications with all stakeholders and harmonizing ESG reporting with the highest international best practices. Conclusion The key areas that would impact business competitiveness increasingly in the coming years would be resilience, transparency, and trust. ESG disclosure has now become a factor that gives a company a competitive advantage, rather than a mere compliance factor. Apart from merely being visible in the current market, Indian companies that pledge to authentic, trustworthy, and deeply integrated ESG disclosures are more likely to survive in the long run. The real question of the moment is not whether we should invest in ESG reporting, but how effectively businesses can weave it into their daily operations and growth. Author - Surbhi Gulati (Associate Director)

ESG Perspective is Pierag’s ESG & Sustainability Newsletter, created to foster informed, forward-looking conversations on sustainability. As the global ESG landscape continues to evolve rapidly, shaped by regulatory reforms, climate priorities, market mechanisms, and rising stakeholder expectations, the newsletter serves as a concise and practical knowledge resource for organizations navigating this change. Each edition curates relevant global and Indian ESG developments across environmental, social, and governance dimensions, translating complex regulatory and policy shifts into clear insights. Through a focus on emerging trends, reporting reforms, climate initiatives, and sector-specific developments, ESG Perspective aims to support informed decision-making and help stakeholders understand the practical implications of ESG in today’s business environment.

The cost which is not being tracked "The financial statements haven’t caught up with reality yet" ESG is often misjudged by most of the companies as a compliance obligation, but it is much more than reporting. There has been growing concern over the increasing costs that come with changes that ESG demands in an organisation. Yet, beneath the day-to-day operations lies an overlooked truth- the cost of not being sustainable is often far greater than the cost of becoming sustainable. In many logistics fleets, for instance, idle engine time quietly burns through fuel budgets every single day. But it appears like routine spending rather than a clear sign of avoidable loss. Hidden Inefficiencies and Margin Erosion Across industries, hidden inefficiencies accumulate silently in the form of energy inefficiency, poor supply chain traceability, unmanaged risks, rising compliance costs, and fragmented processes that rarely appear on financial statements yet but unmistakably erode margins, operational disruptions, higher cost of capital, and eroding competitiveness. These costs often remain invisible because they are scattered across facilities and departments. Traditional accounting systems fail to attribute them to sustainability-driven inefficiencies. They hide in operational noise, until they hit margins. Companies assume ESG increases expenditure because they only see the upfront effort. What they miss is that avoiding ESG leaves everyday losses untracked, and those often add up to more. This is exactly where ESG accounting can play a pivotal role. ESG Cost Accounting: Turning Sustainability into Financial Intelligence ESG cost accounting integrates sustainability metrics with financial accounting. It transforms sustainability from a narrative into a quantitative, data-driven business case and provides answers to issues that traditional finance systems are unable to. It helps you see where money's slipping away, spot what's not working efficiently, and connect your sustainability efforts directly to your bottom line. You unlock real profitability in practical ways: cutting energy costs, making smarter purchasing decisions, spending less on compliance, reducing the capital you need to set aside for risks, getting better financing terms, and making day-to-day operational calls with confidence Companies that measure their ESG impact tend to  see better profit margins,  recover faster when things go sideways and become more valuable over time.  Financial clarity turns sustainability from an obligation into a Return on Investment (ROI) - driven strategy. For instance, for many industrial companies, energy accounts for over 15{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} of operating costs. Even modest efficiency gains can lift annual profits by 2-10{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3}, while a 20{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} reduction in energy spend can deliver the same bottom-line impact as a 5{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} increase in sales. From Cost Centre to Competitive Advantage ESG should be viewed as a value centre rather than a cost centre. Companies that implement ESG cost accounting don’t just mitigate risks, they outperform competitors. When sustainability is measured like a financial discipline, it begins to pay for itself. Not only that, but evidence from various studies also suggests that companies with more transparent ESG reporting tend to access third-party financial resources at more favourable conditions. A recent academic study found that companies with smart supply-chain management show improved ESG performance, which tends to correlate with better operational transparency and efficiency.  This reinforces that ESG is not a narrative exercise - it improves commercial fundamentals. Looking ahead In essence, companies that will outperform in the next decade are those that understand their true cost structure and can quantify the financial implications of every operational decision. ESG should not be confined to compliance. It is a pathway to cost clarity, operational discipline, and long-term strategic advantage. Author -  Ashlesha Aggarwal (Executive)

Environmental, Social, and Governance (ESG) has evolved from just a compliance checkbox to a real strategic requirement that defines investment decisions and impacts long term operational frameworks. Fundamentally, risk assessment is what differentiates organizations at its core- ones who simply report ESG metrics and those who understand the importance of weaving sustainability in their business decisions and operations. The Evolving ESG Risk Landscape The risk management frameworks being followed traditionally need an upgrade looking at the evolving ESG landscape today. Imagine a manufacturing facility in Gujarat with very well written safety protocols but in the real environment- they turn blind to supply chain risks, child labor being involved in raw material procurement or water stress affecting key suppliers. This disconnected landscape may lead to an actual need for improved ESG risk assessment analysis. Modern risk goes way beyond the conventional corporate risk parameters. Coastal infrastructure and agricultural supply chains are often impacted by climate related physical threats. Social risks can arise unexpectedly, maybe through reputational damage pertaining to poor diversity policies or operational disruptions because of opposition from local communities. Governance failures can lead to destruction of years of trust and legacy almost instantly.  Limitations of Conventional Risk Models Most organizations still reply on financial risk models that are not equipped to handle ESG factors. How does one measure biodiversity loss or social license to operate financially? The complexity multiplies when considering ESG risks’ interconnected nature. A governance lapse might cascade into environmental violations, triggering social unrest and eventually financial penalties scenarios rarely captured in traditional risk matrices. The temporal challenge compounds these difficulties. ESG risks typically unfold over longer horizons than quarterly reporting cycles. Current groundwater extraction might cause severe water scarcity within a decade, but this doesn't appear in immediate financial statements. Effective forward-looking risk assessment demands scenario analysis and stress testing that remain uncommon in many organizations. Developing an Effective Framework Building robust ESG risk assessment starts with materiality assessment identifying which ESG factors genuinely impact your business. A textile manufacturer faces entirely different risks than a software services company. The former must address water usage, chemical discharge, and manufacturing labor conditions. The latter needs to prioritize data privacy, data center energy consumption, and employee well-being in demanding work environments. After identifying material issues, appropriate quantification becomes vital. This doesn't require forcing everything into a single metric but developing suitable indicators across different risk categories carbon footprints, water stress indices, diversity ratios, board independence metrics. The crucial element is ensuring active monitoring and action, not merely data collection. Stakeholder engagement stands out as particularly important. Financial risks can still be assessed internally but ESG risks demand an external pair of eyes from a two-sided perspective. Regular conversations with stakeholders like NGOs, communities, customers and employees often discover blind spots that are missed by internal audits. There have been instances where organisations discover unexpected impacts on local communities or any stakeholders simply because they never asked the right questions or evaluated these metrics.  Internal Audit's Expanding Mandate Internal audit teams have become critical contributors to ESG risk assessment, though many are still adapting to this expanded role. Their traditional expertise in independent verification and controls testing proves invaluable when applied to ESG metrics. While sustainability teams develop strategies and operations implement them, internal audit ensures reported information is accurate and actions align with commitments. The challenge lies in internal auditors' traditional training in financial and operational auditing rather than environmental science or social impact. Forward-thinking organizations address this through cross-functional teams pairing auditors with sustainability experts or recruiting professionals with environmental and social science backgrounds into audit functions. Internal audit's contribution extends beyond verification. They are uniquely positioned to analyse whether ESG risks are properly considered, controls are properly laid out, and whether the governance structures function effectively. When gaps are identified in internal audits between the ESG disclosures, actual operations and practices even before any external stakeholder notices the same, it shields organisations from regulatory risks and reputational damage.  Strategic Integration and Future Directions ESG risk assessment cannot operate as a sustainability team silo. It requires integration with enterprise risk management, influencing strategic planning, capital allocation, and performance management. When procurement teams grasp reputational risks in supplier relationships and project managers incorporate climate adaptation costs, ESG becomes operational reality rather than annual report rhetoric. India's regulatory environment, particularly SEBI's BRSR requirements, is accelerating this integration for listed companies. However, disclosure without genuine risk assessment becomes merely a compliance burden. Companies viewing this as an opportunity to strengthen risk management gain competitive advantages. Technology has made its way to making ESG risk assessment effective and efficient. Satellite imagery helps monitor deforestation in supply chains; digital tools can also come in handy to flag potential risks and violations by analyzing multiple data sources. These technological aids often fasten the process of risk identification. In the meantime, experienced professionals must still interpret findings and make strategic decisions. The final objective is not eliminating ESG risks that is not necessary or feasible, it is all about understanding and decoding them in a manner that making informed decisions becomes a part of the organization’s DNA and asking questions like which risks are to be mitigated, accepted or potentially converted into an opportunity becomes a part of the process. Organisations who will master this workflow will not only avoid pitfalls but will also position themselves for sustainable growth in the longer term. Author - Surbhi Gulati (Associate Director)

Today, sustainability has moved far beyond the realm of corporate goodwill. It has now become a core driver of financial and strategic decision-making on a global scale. Industry estimates suggest that the value of ESG-linked assets could approach US $40 trillion by 2030, which is a clear sign that capital is increasingly flowing towards more responsible and transparent business models. At the same time, regulations are becoming more stringent. One of the most extensive reporting systems to date, the Corporate Sustainability Reporting Directive (CSRD) requires thousands of businesses in Europe alone to provide thorough sustainability disclosures. With expectations rising from regulators, investors, customers, and rating agencies, organizations can no longer treat ESG as an annual communication exercise. They need the operational capability to measure, validate, and continuously improve sustainability performance. The Shortcomings of Traditional ESG Reporting Models Historically, ESG reporting was primarily reliant on manual data collection across departments, spreadsheets, supplier questionnaires, and fragmented documentation. These workflows were often labor intensive and prone to inconsistencies, particularly for businesses operating across multiple regions or supply-chain networks. As the volume of ESG data increased, manual systems reached their saturation. In a recent investor study, 85{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} of institutional investors believe greenwashing and other misleading sustainability claims have become a more serious concern compared to five years ago. The challenge is not intent, but capability; manual processes make accuracy difficult to guarantee. Time constraints exacerbate the dilemma. For many firms, ESG reporting cycles take six to nine months, leaving little space for analysis or strategic planning. As a result, sustainability reporting becomes retrospective, focusing on documenting the past rather than informing future decisions. AI and Digital Infrastructure: Redefining ESG Reporting Artificial intelligence has emerged as a structural solution to these operational burdens. Instead of gathering sustainability metrics manually at set times, AI-driven platforms connect directly with ERP systems, financial systems, facility monitoring tools, HR platforms, and supplier databases. This guarantees that ESG data is collected consistently and centrally, rather than assembled in response at year-end. The efficiency gains are substantial. Organizations which adopted automated ESG systems report 30–40{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} faster reporting cycles. Moreover 84{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} of enterprises that automated their ESG data collection reported increased data accuracy and quicker reporting cycles. Hence by minimizing spreadsheet reliance and standardizing data classification, AI significantly improves reporting accuracy and reduces the risk of discrepancies. Machine-learning models analyze anomalies, flag missing information, and trace the source of every modification through tamper-proof audit trails; capabilities critical for both investor confidence and regulatory compliance. Another advantage lies in automated framework mapping. Whether reporting under CSRD, ISSB, GRI, SASB, or a combination of standards, AI systems align internal metrics with disclosure requirements and adjust automatically when frameworks evolve. This eliminates one of the biggest administrative barriers companies have historically faced and ensures disclosures remain consistently audit-ready. From Compliance to Strategic Intelligence: Turning ESG Data into a Performance Engine The most transformative impact of AI is not efficiency; it is strategic visibility. Real-time emissions dashboards, supply-chain risk models, and predictive sustainability analytics transform ESG from fixed reporting to dynamic business intelligence. Modern digital platforms can analyze thousands of operational and external data points at the same time, allowing leaders to forecast the sustainability impact of business decisions before implementation. For example, digital twin simulations can improve capital and operational efficiency in the public sector by 20–30 percent by allowing smarter investment decisions and optimized project planning. In addition, supply-chain analytics guided by numerous third-party data sources, help organizations evaluate ESG vulnerability in procurement; particularly important as up to 90{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} of total emissions (Scope 3) come from the supply chain in many industries. So instead of responding to sustainability risks following an audit or news article, companies can now proactively recognize and tackle them. Financial outcomes underscore the strategic importance of this shift. Organizations that exhibit high quality in ESG reporting typically face lower capital costs and tend to show stronger long-term value resilience. At the same time, significant ESG controversies quickly weaken investor confidence and can cause substantial declines in stock value. It shows that delayed or inaccurate reporting is no longer just a compliance issue rather it carries tangible financial consequences. The Role of Human Judgment in a Data-Led ESG Landscape Despite the clear advantages of automation, AI does not replace the role of sustainability leaders. Social and governance dimensions frequently require interpretation beyond numerical indicators. Ethical concerns, labor practices, human rights impacts, and cultural context cannot be reduced to algorithms alone. The most successful ESG frameworks therefore adopt a hybrid model wherein AI is for precision and scalability, and human expertise for interpretation, decision making, and accountability. Conclusion: ESG Reporting Can Now Be an Engine for Growth Digital sustainability has redefined the purpose of ESG reporting. The tasks that once demanded significant manual effort can now function around the clock and with intelligence, offering leaders real-time visibility into environmental impact, regulatory exposure, and opportunities for value-creation. Companies adopting AI-driven ESG systems are improving compliance performance, boosting investor confidence, reducing operational costs, and building competitive advantage in markets where transparency is increasingly linked to capital access and brand equity. With the rapid global rise of ESG expectations, organizations shifting from manual reporting to digital, predictive sustainability will be optimally positioned to take the lead. The issue is no longer if companies should modernize ESG reporting; instead, it’s a matter of how swiftly they can develop the necessary infrastructure to thrive in a sustainability-driven economy. Author - Ayushika Saraswat (Consultant)

Imagine a future where the most valuable currency isn’t gold, dollars, or even Bitcoin—but carbon credits. In a world racing against time to curb climate change, these tradable certificates, each representing the removal or reduction of one metric ton of CO₂, are emerging as the “climate coin” that could redefine global wealth and economic power. The Birth of a Climate Currency Carbon credits were born out of necessity. The Kyoto Protocol in 1997 introduced the concept, allowing developed nations to fund emission-reduction projects in developing countries. This laid the foundation for a global carbon market, a space where environmental responsibility meets economic opportunity. Fast forward to the Paris Agreement in 2015, and the game changed: every nation now sets its own climate targets, and Article 6 created a framework for cross-border carbon trading, making carbon credits a universal language of climate action. Why Carbon Credits Matter Today The urgency is undeniable. The Intergovernmental Panel on Climate Change warns that limiting global warming to 1.5°C requires deep emission cuts. Yet, industries cannot eliminate all emissions overnight. Enter carbon credits—a bridge between ambition and reality. Tech giants like Amazon pledge carbon neutrality by 2040, banking on credits to offset unavoidable emissions. For businesses, these credits are more than compliance tools—they’re strategic assets signaling climate leadership. Global standards are tightening. The EU Emissions Trading System (EU ETS), launched in 2005 as the world’s first major carbon market, now pairs with the Carbon Border Adjustment Mechanism (CBAM), moving to full implementation in 2026, ensuring imported carbon-intensive goods carry a price comparable to the EU’s. In India, the Carbon Credit Trading Scheme (CCTS) and the Indian Carbon Market (ICM), were notified in 2023, laying the groundwork for a structured national carbon credit market. As emission intensity targets are rolled out in 2025, this scheme positions Indian industry to compete in a world where carbon cost will increasingly determine market access. Leading Indian companies, including Mahindra & Mahindra, Tata Steel, Infosys, Hindustan Zinc, and Reliance Industries, are already active participants in carbon markets, signalling how corporate India is integrating carbon credits into business strategy and long-term decarbonisation plans. The Market Behind the Movement Unlike traditional currencies, carbon credits don’t have a fixed global price. Their value depends on project type, certification, and market dynamics. Credits from reforestation or renewable energy projects often fetch premium prices because they deliver biodiversity and community benefits. Verified standards like VCS and Gold Standard ensure integrity, making these credits highly sought after. Today, the carbon market is no longer a niche policy tool—it’s one of the fastest-growing economic systems. In 2025, the global carbon credit sector is estimated to be worth USD 838–933 billion, and projections suggest it could surge to USD 10–17 trillion by 2034, driven by corporate net-zero pledges and rising demand for high-integrity offsets. Compliance carbon trading systems now operate across multiple jurisdictions, covering up to 28{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} of global emissions and generating more than USD 100 billion in public revenues by late 2024. Momentum is accelerating: companies retired a record 95 million credits in the first half of 2025. Looking ahead, supply could expand 20–35 times by 2050, reaching 4.8 billion tonnes of CO₂e annually in high-quality scenarios, with credit prices expected to climb to USD 60–104 per ton as technologies like direct air capture and nature-based solutions mature. From Paper to Digital: Tokenized Carbon Credits Blockchain technology is transforming carbon credits into digital tokens—secure, traceable, and tradable like cryptocurrency. Each token represents a verified credit, creating transparency and eliminating double-counting. Imagine logging into your digital wallet and seeing not just Bitcoin but climate coins backed by real-world impact. These tokenized credits could soon dominate decentralized finance platforms, merging sustainability with fintech innovation. Challenges on the Horizon Yet, the rise of carbon credits as a “climate coin” comes with real challenges. A major meta-study covering nearly 1 billion tonnes of CO₂ equivalents found that less than 16{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} of issued credits truly cut emissions. Price swings across project types add uncertainty, and greenwashing remains a major risk. Investigations show that 78{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} of the top 50 offset projects may be “likely junk,” raising doubts about their integrity. Weak verification and flawed third-party audits deepen these concerns, turning many credits into claims rather than real climate action. The Road Ahead Carbon pricing mechanisms like Sweden’s $130 per ton carbon tax and the EU ETS are pushing companies to rethink emissions as liabilities. Meanwhile, voluntary markets are booming as corporations race toward net-zero commitments. Stricter verification protocols from bodies like the Integrity Council for the Voluntary Carbon Market promise to weed out greenwashing, ensuring every credit delivers genuine climate impact. Could Carbon Credits Rule the Economy? If trends continue, carbon credits might become the most influential economic instrument of the century. They represent survival, responsibility, and opportunity all rolled into one. In a world where climate risk dictates financial stability, the “climate coin” could very well become the currency that matters most.

This Social Impact Report presents a comprehensive overview of Pierag’s initiatives and commitments during the period 1 April 2024 to 30 September 2025

In the contemporary business environment, the intersection of financial and non-financial reporting has evolved into a strategic imperative, particularly considering the growing emphasis on environmental, social, and governance (ESG) considerations. Drawing upon my 23 years of expertise as a Chartered Accountant and now as sustainability professional for couple of years, I've observed a notable paradigm shift in how organizations perceive and communicate their value creation mechanisms. Traditionally, financial reporting has been entrenched in monetary metrics, providing insights into a company's fiscal performance and solvency. Yet, this narrow focus fails to capture the full spectrum of value drivers and risk exposures faced by modern enterprises. Conversely, non-financial reporting encompasses a broader array of indicators, encompassing environmental impact, societal contributions, and governance practices, which significantly influence financial outcomes. The nexus between financial and non-financial reporting is deeply rooted in their symbiotic relationship and their collective influence on organizational resilience and competitiveness. Extensive research substantiates that firms demonstrating robust ESG performance are more likely to achieve sustained financial outperformance over the long term. According to a study by Harvard Business Review, companies with high ESG ratings outperformed their counterparts with lower ratings by 4.8{7126ef689967c99f7e9a450841e77e615dc0e5bf9a33aadbab7cb6478499c2b3} in stock returns over a five-year period. Furthermore, the significance of non-financial reporting transcends regulatory compliance, fostering stakeholder engagement, fortifying brand reputation, and differentiating market positioning. For instance, the renewable energy sector provides a compelling example of the symbiotic relationship between financial and non-financial reporting. Companies like Ørsted, a global leader in offshore wind energy, have successfully integrated ESG considerations into their financial reporting frameworks. By aligning their business model with sustainability goals and transparently disclosing their ESG performance metrics, Ørsted has not only attracted investors but also positioned itself as a frontrunner in the transition to a low-carbon economy. The ascendancy of non-financial reporting underscores a broader trend towards sustainable business practices and stakeholder-centric capitalism. As companies pivot towards sustainable development objectives and responsible corporate governance, they are redefining value creation paradigms to encompass ecological stewardship, social equity, and ethical governance. By embracing this holistic approach to reporting, organizations can unlock latent opportunities for innovation, growth, and competitive differentiation in an ever-evolving marketplace. In summation, the fusion of financial and non-financial reporting heralds a transformative shift in corporate transparency and accountability. As stewards of financial integrity and strategic advisors, we as financial and non-financial advisors are uniquely positioned to facilitate this transition, guiding organizations towards a more integrated and transparent reporting landscape that optimizes stakeholder value, fosters sustainable growth, and advances the broader imperatives of responsible business conduct.

What are Scope 4 Emissions - A New Category? Scope 4 refers to and is categorized as "Avoided Emissions" – the emissions that are prevented through the use of a product or service, rather than those directly emitted. It is not part of the GHG Protocol’s Scope 1, 2, or 3 officially, but is progressively being used in sustainability narratives and voluntary disclosures. It measures the climate benefit of technologies, products, or practices that reduce emissions either in the value chain or for the end users. It is commonly observed in sectors like energy-efficient appliances, digitization, and circular economy models, etc. Examples to Understand A manufacturing company adopting sustainable packaging that avoids plastic waste and the associated emissions. A service company calculating the avoided emissions enabling remote work, reducing the commuting-related emissions. A solar panel manufacturer calculating the emissions avoided by customers switching from coal-based power. Why Scope 4 Matters Aligns with science-based targets and net-zero journey of organizations that consider value-chain impacts. Showcases innovation, highlighting how products or technologies contribute to a low-carbon economy. Shows climate-positive contributions in addition to the organization’s own carbon footprints. Supports policy engagement, strengthening the case for favorable green policies and incentives. Establishes stakeholder trust, communicating proactive leadership in sustainability beyond compliance. Global Sustainability Frameworks and Guidance 1. GHG Protocol – Guidance on Avoided Emissions (Draft & Discussion Papers) Although not a formal standard as yet, the GHG Protocol has published discussion papers acknowledging "avoided emissions". It encourages voluntary, transparent disclosure, especially for innovative or green technologies. 2. Science Based Targets Initiative (SBTi) SBTi recognizes avoided emissions but does not count them toward science-based targets. It encourages companies to focus on actual emission reductions within Scopes 1, 2, and 3, but recognizes Scope 4 for product innovation and climate solutions. 3. CDP (Carbon Disclosure Project) CDP does not currently have a specific Scope 4 category but allows companies to disclose “emission reductions outside Scopes 1-3” in narrative or project-based disclosures. Innovative companies often use CDP’s open-text sections to communicate avoided emissions through case studies or product impact assessments. 4. EU Taxonomy and CSRD (Corporate Sustainability Reporting Directive) While not explicitly calling it Scope 4, CSRD and EU Taxonomy encourage disclosure of the “environmental impact of products and services”, including how they enable decarbonization of other sectors. Product use-phase impacts and contributions to climate change mitigation can align with avoided emission disclosures. 5. IFRS S2 (Climate-related disclosures) IFRS S2 (from ISSB) focuses on financially material climate risks and opportunities. Companies may disclose avoided emissions as part of their climate-related opportunities, especially if such reductions generate future economic benefits. Impact on Indian Companies Opportunities Scope 4 positioning enhances long-term enterprise value and brand equity. Helps in achieving extended producer responsibility (EPR) and Circular Economy goals under Indian Environmental Laws. Listed Indian companies preparing for BRSR Core, IFRS S2, and CSRD-style disclosures will find Scope 4 useful for showcasing product sustainability. For alignment with global supply chains, clients often seek suppliers who contribute to their net-zero goals. Demonstrating how your business enables decarbonization can attract ESG investors and global partners by this strategic differentiation. Challenges No standard method for quantifying avoided emissions, which may set a risk of greenwashing if not credibly backed. Verification complexities and therefore need for credible data, assumptions, and third-party assurance. Need for investment in LCA (Life Cycle Assessment) tools and supply chain data transparency. Risk of double counting as emissions reductions may also be claimed by the end user or downstream partner. Way Forward for Indian Industry Begin incorporating Scope 4 in ESG strategy documents as a voluntary but forward-looking metric. Work with consultants and assurance providers to develop robust methodologies. Integrate Scope 4 into product innovation and R&D processes. Align with global buyers and regulators increasingly valuing "climate-beneficial" products. Conclusion Scope 4 is not just about reducing emissions, it’s about enabling others to reduce theirs. For Indian companies, especially in technology, infrastructure, manufacturing, and renewable energy, Scope 4 offers an underexplored opportunity to amplify climate impact, unlock green revenue, and future-proof business models. As global standards evolve, early adoption of Scope 4 thinking can be a strategic advantage, positioning India as a proactive contributor to global decarbonization in the climate-conscious global economy.