THE PRICE OF RESPONSIBILITY - NIRANJAN GIDWANI

 

Over the past decade, sustainability and ESG have moved from the margins of corporate communication to the centre of corporate legitimacy. Investors, regulators, customers and civil society now expect companies to measure their emissions, protect workers, govern responsibly, trace their supply chains and disclose their performance with increasing precision.

Yet beneath this welcome progress lies one of the most consequential contradictions in modern business. The world expects companies to produce more cleanly, safely and transparently, while continuing to reward the lowest possible landed cost. This is not an argument against ESG. It is an argument for making ESG economically real.

The shift has been significant. What was once voluntary corporate language has become a matter of market access, regulatory compliance, investor confidence and board accountability. In India, SEBI has made Business Responsibility and Sustainability Reporting mandatory for the top 1,000 listed companies by market capitalisation from FY 2022–23. The BRSR Core framework has taken the transition further, focusing attention on a defined set of ESG metrics, phased assurance and, increasingly on sustainability performance within the value chain.

Globally, the direction is similar. European sustainability reporting and due-diligence rules are steadily raising expectations. For Indian businesses, particularly those seeking to become part of global supply chains, this creates both an opportunity and a demanding new entry condition. India’s ambition to become a factory to the world will not be fulfilled merely through capacity, labour availability or geopolitical diversification.

Global customers will expect world-class quality, timely delivery, reliable capacity, traceability, ethical labour practices and credible environmental performance. The challenge is that India must often deliver all this while seeking to match, or initially better, China-linked price benchmarks in order to win market share.

This is where the ESG conundrum becomes acute. Genuine compliance is not a slogan, a glossy report or a last-minute exercise before an annual disclosure is published. It requires investment. A manufacturer may need cleaner machinery, renewable power, energy-efficiency upgrades, water-treatment systems, safer materials, worker housing, health and safety protocols, training, grievance systems, digital data capture, supplier audits and independent assurance. A service provider may need to invest in ethical controls, labour practices, privacy, diversity, governance and transparent reporting.

Some investments will ultimately improve productivity. Lower energy consumption can reduce operating expenditure. Safer workplaces can reduce accidents and disruption. Better data can improve management discipline, and stronger ESG credentials can open doors to global buyers, capital and talent. But the transition costs are immediate, while the gains may be gradual. The question that boards must confront is simple but difficult - who pays for responsible production?

Too often, buyers demand emissions data, social audits, traceability and corrective action while simultaneously pressing suppliers for lowest prices, faster delivery and ever-thinner margins. If a supplier cannot earn enough to invest in the systems it is required to maintain, it faces an impossible choice. It may lose the contract, or it may be tempted to present the appearance of compliance without building the underlying capability. That is the environment in which greenwashing, weak disclosure and audit theatre flourish. ESG cannot be credible if the commercial model makes genuine compliance unaffordable.

This tension is visible across global supply chains. Walmart has publicly articulated supplier expectations on responsible sourcing and environmental performance, and its earlier approach included refusing to buy from Chinese suppliers with poor environmental records. Yet its commercial identity is also rooted in delivering value and low prices to consumers. The point is not to single out one buyer. Rather, it is to recognise a structural conflict embedded in modern procurement. Purchasing teams are commonly rewarded for unit-cost savings, while sustainability teams are expected to reduce environmental and social harm. Unless those objectives are reconciled, the supplier is left carrying the financial burden of both.

Apple’s relationship with Pegatron offers another instructive example. In 2020, Apple placed Pegatron on probation after finding that student workers at one of its China facilities had been made to work overtime and night shifts, contrary to Apple’s rules. No single incident can explain the full complexity of a supply chain, but it illustrates the broader pressure point. Suppliers are expected to deliver sophisticated products at scale, at speed, at exacting quality standards and at globally competitive prices, while also meeting increasingly demanding labour and governance requirements.

These expectations are legitimate. What is questionable is whether commercial arrangements consistently provide suppliers with the financial space to fulfil them honestly and sustainably.

Governments face the same contradiction. Public tendering systems around the world often give overwhelming weight to the lowest technically qualified bid. In India, L1, or lowest-price logic, remains a major feature of procurement, though quality-and-cost-based selection is available in certain contexts. A company that has invested seriously in low-emission equipment, worker safety, local capability, traceability and independent assurance may therefore lose a contract to a competitor that has not incurred those costs. The state then risks sending a contradictory message. It urges responsible business conduct through regulation and policy but rewards lower upfront prices even when those prices conceal environmental, labour or lifecycle costs.

Value for money should not be confused with the cheapest initial quotation. A lower-priced product that consumes more energy, fails sooner, or creates future environmental liabilities may not be cheaper at all. It simply transfers the cost elsewhere, to workers, communities, taxpayers and future generations.

Inflation makes this issue sharper. As households contend with rising costs of food, energy, transport and housing, they naturally become more price-sensitive. Brands and retailers fear weaker demand. Governments face pressure to control expenditure. Manufacturers confront rising costs of inputs, finance and labour. In this environment, ESG-compliant companies cannot simply request a vague “green premium.” They must demonstrate lower total cost of ownership, greater reliability, fewer supply disruptions, stronger quality, reduced regulatory exposure and improved access to demanding export markets. Yet where sustainability measures carry genuine upfront costs, buyers cannot expect suppliers alone to absorb them.

The way forward is not to dilute ESG standards, nor to pretend that they can be met without investment. It is to build a more honest commercial compact. Global buyers must increasingly support longer-term contracts, predictable order volumes, fair payment terms, transition finance, co-investment in cleaner production and procurement models that reward verified performance rather than simply the lowest quoted price. Suppliers must improve productivity, measure what matters, disclose transparently and submit their claims to credible assurance. Governments must redesign tenders so that lifecycle value, resilience, environmental performance and social responsibility receive real weight beside price.

For boards, this is a stewardship test. ESG cannot remain the responsibility of a sustainability committee while procurement, pricing, capital allocation and supplier contracts operate with entirely different incentives. The companies that endure will be those that integrate responsible production into their core economics.

India’s manufacturing future will not be secured by choosing between competitiveness and responsibility. It will be secured by redefining competitiveness so that companies which make products well, make them responsibly, and prove both, are not punished by the world or by the customer for doing the right thing.