Environmental, social, and governance (ESG) considerations refer to a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing issues such as climate change. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance criteria deal with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
It is said that the ESG proposition is directly linked to value creation and better financial performance for the corporates.
Some of its major impacts are as follows:

• Top-line growth: When governing authorities trust corporate actors, they are more likely to award them access, approvals, and licenses that afford fresh opportunities for growth. Companies with social engagement activities are perceived to be beneficial by the public and social stakeholders. For instance, in India, the Tata Group has garnered immense social capital and very seldom their projects face public outrage.
• Cost reduction: ESG proposition can reduce costs substantially by effectively combating rising operating expenses such as raw material costs. There is a significant correlation between resource efficiency and financial performance. For instance, 3M has saved $2.2 billion since the introduction of its “pollution prevention pays” (3Ps) programme in 1975.
• Reduced regulatory and legal interventions: A stronger external value proposition can enable companies to achieve greater strategic freedom, thereby easing regulatory pressure. It has been seen that strength in ESG helps reduce companies’ risk of adverse government action and can also engender government support.
• Employee productivity uplift: A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall. Recent studies have also shown that positive social impact correlates with higher job satisfaction, and field experiments suggest that when companies “give back,” employees react with enthusiasm.
• Investment and asset optimization: A strong ESG proposition can enhance investment returns by allocating capital to more promising and more sustainable opportunities (for example, renewables, waste reduction, scrubbers, etc.).

As per the National Family Health Survey-5, India’s Total Fertility Rate (TFR) has declined from 2.2 in 2015-16 to 2.0 in 2019-21. With falling fertility, rising median age (from 24 years in 2011 to 29 years currently which is expected to be 36 years by 2036), and a falling dependency ratio (expected to decrease from 65% to 54% in the coming decade), India is in the middle of a demographic transition. With this, India will have a nano demographic window in the two decades of 2020 to 2040, to achieve the socio-economic objectives as follows:

• Human capital formation: Increased investment in health, education, and skills for the younger population, as fewer resources are needed to be diverted for dependent populations ie. children and elderly. Thus, it will help in plugging income inequality through better job opportunities.
• Higher per capita: Low fertility scenario supports higher income per capita, higher capital stock per worker, and a lower unemployment rate, which will boost the GDP. These will help in achieving the goals of zero hunger and poverty.
• Increased labour force participation: A shift in the age structure of the population towards the working-age group will increase the potential labour supply. In addition, lower fertility induces more female participation in the labour market. It will help in achieving inclusive growth and socio-economic parity.

However, without adequate policies, the nano demographic window may lead to rising unemployment, thereby fuelling economic and social risks. Further, with the passage of time, the share of the older population will rise and that of the working age population will begin to fall. To address these challenges and to gain from the nano demographic window, India needs to take various measures, such as:

• Improving consumption patterns: Consumption imbalance between children and adults needs to be addressed by increasing investment in terms of nutrition and learning during early childhood to create a strong foundation for human capital.
  • As per the National Transfer Accounts (NTAs), a child in India consumes around 60% of the consumption by an adult aged between 20 and 64, while a child in China consumes about 85% of a prime-age adult’s consumption.
• Investment in education and healthcare: Public spending on health has remained flat at around 1% of GDP. It needs to be improved, particularly in states whose demographic window of opportunity is still more than a decade away, like Uttar Pradesh and Bihar.
• Allocation based on the latest population census: There should be devolution of more funds to states with a higher working population in order to nurture more human capital.
• Transition in skilling: There should be greater focus on transitioning from secondary education to universal skilling and entrepreneurship. Also, upgrading skills in terms of emerging technologies like Artificial Intelligence helps get the Indian workforce ready to enter the 4th Industrial Revolution.
• Increasing share of women workforce: As of 2019, 20.3% of women were working or looking for work, down from 34.1% in 2003-04. This has to be increased through tax incentives and other measures like gender budgeting.
• Creating employment opportunities: Providing incentives to start-ups and large manufacturing industries through schemes like Make in India, Stand-Up India, and Start-Up India will help to provide employment to the available workforce.

Such comprehensive measures will help India not only to capitalise on the nano demographic window for becoming a developed country, but also to lay a solid foundation for the generation that will enter the demographic divided window.

Effective use of financial resources has been highlighted in the United Nations Sustainable Development Group (UNDG) Reference Guide as a critical dimension in the achievement of Sustainable Development Goals (SDGs). Further, in the SDG India Index, NITI Aayog has also recognised that financial resources are a fundamental driver for achieving the SDGs on time. However, audit reports on various development initiatives and the finances of the Center and states have frequently highlighted inefficacies in expenditure.

These include:

• Persistent non-spending of allocated funds: The persistent problem of unspent balances is a direct consequence of India’s broken governance structures (at various levels), which have been highlighted in various reports. For instance, a CAG report on the Clean Ganga Mission pointed to an unspent balance of approximately Rs. 2500 crores in 2017.
• Diversion and parking of funds: The CAG report of 2017 on performance audit of disaster management in Jammu and Kashmir reported that 25 percent of the expenditure meant for disaster mitigation purposes was diverted towards ineligible works.
• Irregular and wasteful expenditure: The CAG report in 2020 exposed several irregularities and wasteful expenditures to the tune of hundreds of crores by various Goa government departments.
• Misallocation/misutilisation of funds: Welfare schemes such as the Sarva Shiksha Abhiyan, Mid-Day Meal Scheme, PM Awas Yojana, Swachh Bharat Mission, etc. are riddled with misallocation and leakages. A Parliamentary Standing Committee report highlighted the issues of widespread corruption, insufficient funding and huge pending payments for wages in schemes like the MGNREGA.

The Voluntary National Review (VNR) Report and Three Year Action Agenda have listed out several measures for improving expenditure efficiency and effectiveness, which are as follows:

• Reorientation of the Budget with SDGs: Preparation of the Outcome Budget mandated since 2006-07 has not been as effective as envisaged and there is a need to reorient the Budget with SDGs. States like Haryana, Maharashtra, Assam etc. have taken some preliminary steps in this regard.
• Expenditure reforms: These include the following:
  • Introduction of sunset clauses in all public expenditure programmes.
  • Effective utilisation of the Public Financial Management System for tracking all expenditure flows.
  • Rationalisation of schemes through merger and dropping of overlapping schemes.
  • Use of technology like e-procurement and adoption of a Government e-Marketplace (GeM) model etc.
• Intervention at the stage of formulation of schemes: The schemes need to be formulated after adequate consultation with the state governments. There should be specific Ministry-wise Councils so that the Ministries formulate schemes in tandem with the existing state schemes for optimum utilization of resources.
• Need of an expert institution: The NITI Aayog or a body like the Centre-State Expenditure Commission can give directives and lay down the priorities with respect to expenditure.

In addition, improving efficiency of expenditure would need to be established through suitable audits. Further, a decentralized and local approach can help in achieving efficiency while incurring expenditure.