Why Indian Mid-Caps Keep Getting ESG Wrong at the Third Stage - And What to Do About It

If you work in sustainability advisory in India, you have seen this pattern.

Year one: the company engages an ESG consultant. A gap assessment is done. A materiality matrix is developed. A roadmap is produced. The board gets a presentation. Senior leadership is aligned. The ESG programme is officially launched.

Year two: the first BRSR report is filed. It is imperfect, heavily caveated, full of "data not available" placeholders in the more demanding sections. But it is filed, and it represents genuine progress. An internal ESG team - typically one person with the title somewhere between Sustainability Manager and Head of ESG and Sustainability - is established or formalised.

Year three: the report improves. Data quality is better. Coverage is wider. The presentation to the board shows year-on-year progress on key parameters. The company has arrived.

And then, somewhere in year three or year four, something stalls.

The Pattern Underneath the Progress

The visible progress - the improving disclosures, the ticking compliance boxes - masks a structural limitation that most Indian mid-cap ESG programmes carry from the beginning and never address directly.

The ESG function was established in isolation. It sits adjacent to the business rather than inside it. The sustainability manager produces the BRSR report, tracks the metrics, responds to ESG rating agency questionnaires, and manages the external advisor relationship. What the sustainability function does not do - because it was never structured to do it - is actually change the operational systems that determine the underlying numbers.

Energy consumption at a manufacturing facility is determined by how the facility is operated, what equipment is running, how maintenance is managed, and what operational decisions are made hour by hour. The sustainability manager did not make those decisions. The plant operations team does. And in most mid-cap companies, the ESG function and the plant operations function have limited, often purely transactional, interaction.

The result is an ESG programme that reports performance without owning it.

The Core Issue

The ESG function was established in isolation. It sits adjacent to the business rather than inside it.

The Three Specific Failure Points

First: no internal owner with operational authority. The sustainability manager can request data, can produce reports, can recommend improvements. But in a mid-cap industrial company, the authority to change how a facility operates, how capital expenditure for energy efficiency projects is prioritised, or how operational KPIs are defined sits with the COO, the plant head, or the CFO. If those individuals are not accountable for ESG outcomes - if the metrics do not appear in their performance reviews, if ESG improvement is not tied to their budgets and their targets - nothing changes at the operational level. The reports improve because the data collection improves. The underlying performance changes only incidentally.

Second: the ESG and CFO functions are not connected. This one is consistent enough that it qualifies as a structural feature rather than an oversight. In most mid-cap companies, sustainability is either housed within corporate communications or compliance, or it exists as a standalone function that reports to the MD or CEO but operates outside the financial planning and performance management cycle. It has no line into the capex planning process. It has no role in how the treasury evaluates ESG-linked financing. It does not inform how the company thinks about energy or water costs as balance sheet items rather than operational line items.

ESG strategy without a CFO-level view is not strategy. It is programme management.

Third: no training infrastructure for the people who actually determine ESG outcomes. The ESG function knows what needs to change. The sustainability manager has attended conferences, read the frameworks, and built a good working knowledge of what BRSR expects. The plant manager in Nashik who determines daily production scheduling, maintenance priorities, and waste contractor selection has had no structured exposure to ESG requirements, what they mean operationally, or why they matter for the company's long-term trajectory. The gap between ESG knowledge at the corporate centre and ESG awareness at the operational level is where most implementation fails.

What Stage Three Actually Requires

The companies that have navigated this transition successfully - and in Indian industry there are some - have done three specific things.

• Embedded ESG KPIs into operational performance management. Energy intensity, water intensity, and waste metrics appear in the plant head's quarterly review alongside production efficiency and safety metrics. This is not complicated to design. It is a governance decision that requires CFO or COO endorsement. Once made, it changes the dynamic between the ESG function and operational teams from a data collection exercise to a shared performance management conversation.
  

• Established formal, structured capacity building for plant and operational management. Not a single awareness session. A multi-year programme that builds genuine working knowledge of what ESG means for facility management decisions - not as a compliance exercise but as an operational capability. The companies that have done this well report that plant managers become active partners in identifying efficiency opportunities rather than passive data providers.
  

• Connected ESG into capital expenditure decision-making. Projects that reduce energy consumption, improve water efficiency, or reduce waste generation are evaluated alongside conventional return-on-investment metrics. The company develops an internal carbon price or an equivalent mechanism for valuing ESG-related returns. Sustainability moves from a reporting function into an investment thesis.

Why This Moment Matters

The Indian mid-cap companies that started formal ESG programmes in 2021 and 2022 are now entering year three and four. The early-stage work - frameworks, strategies, initial disclosures - is done. The question now is whether ESG becomes a genuine operational transformation or remains a well-documented compliance programme.

The advisory firms that served the first two stages are not always the right firms for the third stage. Stage three requires operational credibility, not framework expertise. It requires advisors who can sit in a room with a plant head and a CFO and have a credible conversation about operational systems, capital planning, and workforce capability - not just about disclosure requirements and materiality assessments.

That difference in advisory capability is what determines whether an ESG programme produces real outcomes or very good reports.

About Sustera Global

Sustera Global supports Indian mid-cap companies through the third stage of ESG implementation - connecting sustainability strategy to operational systems, governance structures, and internal capability. Our advisory is designed to build what outlasts the engagement.

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FAQs

What is the “third stage” in ESG maturity for Indian mid-caps?

The third stage refers to moving beyond strategy and reporting into operational execution—where ESG must be embedded into systems, processes, and measurable performance, not just documents.

What is the typical ESG journey pattern for Indian mid-cap companies?

Most mid-caps follow a three-step pattern:Year 1 – Strategy (gap assessment, materiality, roadmap)Year 2 – Reporting (BRSR filing with gaps)Year 3 – Execution (where most failures occur) 

Why do mid-cap companies struggle at the third stage?

They struggle because ESG transitions from a consultant-led exercise to an internal capability challenge, requiring systems, ownership, and continuous data generation.

What are the signs that a company is stuck at the third stage?

Common indicators include repeated “data not available” disclosures, inconsistent metrics, lack of internal accountability, and ESG remaining a reporting function rather than an operational one. 

Is ESG failure at this stage a strategy problem or an execution problem?

It is primarily an execution problem—companies often have strong strategies but lack the infrastructure and internal mechanisms to implement them effectively.

Why is relying on consultants not enough for ESG success?

Consultants can design frameworks and reports, but sustainable ESG performance requires internal ownership, systems, and cross-functional integration within the organisation.

What role does data play in overcoming this challenge?

Data is central—companies must build reliable, continuous data collection systems rather than relying on periodic, manual reporting efforts.  

How does governance impact ESG execution at this stage?

Without clear governance structures, ESG responsibilities remain fragmented, leading to poor accountability and inconsistent implementation across departments.

What is the biggest misconception mid-caps have about ESG maturity?

The biggest misconception is that filing a report equals progress—in reality, reporting is only an early milestone, not proof of performance.

How can mid-cap companies successfully move past the third stage?

They need to invest in data infrastructure, internal capability building, and governance systems, embedding ESG into daily operations rather than treating it as a compliance activity.