BENGALURU -- Indian information technology giant Tata Consultancy Services is focusing on development of sustainable products as investor appetite grows for companies that adhere to accepted environmental, social and governance (ESG) practices.
In an interview with Nikkei Asia, Girish Ramachandran, president of TCS Asia Pacific, said that embracing ESG not only helps companies optimize resources to post higher profits, but also makes them more palatable to potential investors and employees, particularly among the younger generation.
The company is harnessing its digital technology -- cloud services, data analytics, internet-connected devices and cybersecurity -- to improve in areas such as carbon emission management, energy conservation, recycling, elder care and education.
TCS estimates that spending on consulting services by companies in the Asia-Pacific region to rise from $28.7 billion in 2022 to $34.6 billion in 2024, 25% of which "most companies" will allocate toward sustainability initiatives over the next two years.
It also expects that companies in Germany, India, China, France and the U.K. will lead in this area, with each country pouring about $4 billion into sustainability projects by 2027. U.S. companies may become global leaders in this area, allocating a total of $14 billion to sustainability budgets, with green buildings, carbon footprint management and weather systems comprising most of the spending.
"The pressure is coming. One is definitely from the stock markets," said Ramachandran. "There is [also] significant pressure from employees [from] Gen Y and Gen Z. ... People want to work for companies that are sustainable."
Research company Gartner said in a report last June that "pressure on organizations to meet ESG criteria is more widespread than most finance leaders realize." According to Gartner, 91% of banks, 24 credit rating agencies, 71% of fixed income investors and over 90% of insurers surveyed said they monitor ESG trends, while 67% of banks screen their loan portfolios for ESG risks.
A separate report by data company Morningstar pegged combined global assets of funds focused on ESG-related issues at $3.9 trillion in September 2021.
A Digital Sustainability Index compiled by TCS and New Zealand's University of Auckland revealed that of 195 companies polled across the Asia-Pacific region, more than 87% of respondents believed leveraging digital technologies for achieving "digital sustainability" can give them a competitive edge, while 80% believed that digital sustainability initiatives have improved their reputation. Increasing efficiency and sustainable social procurement emerged as the most prevalent sustainability goals.
Developed markets such as Singapore, Japan and South Korea were more skeptical about digital sustainability than emerging markets such as Thailand and Vietnam, the report found.
Companies from Thailand, Vietnam, the Philippines and Indonesia dominated the Digital Sustainability Index's list of "leaders" -- those that demonstrated strong digital and governance capabilities. Singapore and South Korea had the lowest number of "leaders."
Ramachandran said that while environmental issues, including carbon emissions, still dominate sustainability initiatives, boardroom conversations around social and governance aspects to meet ESG goals are increasing, creating a lucrative option for TCS if it can adopt ESG practices.
"Sustainability is a CEO and board-level conversation, and if you look at the kind of budgets allocated to sustainability and digitization from a business point of view, TCS believes there is an opportunity," Ramachandran said.
He declined to divulge the company's revenue targets from sustainability-related offerings, saying these are still the "early days."
Getting companies to invest in setting and pursuing sustainability goals is easier said than done. The Digital Sustainability Index noted that budget constraints and lack of in-house knowledge prevent large corporations that allocate less than $250 million from becoming digitally sustainable. Those who spend more than $250 million are hindered by uncertain returns on ESG investment and lack of management support.
Ramachandran said that while environmental issues, including carbon emissions, still dominate sustainability initiatives, boardroom conversations around social and governance aspects to meet ESG goals are increasing, creating a lucrative option for the products offered by TCS.