ESG 2.0: A Blueprint for Regenerative, Resilient, and Inclusive Business

ESG 2.0: A Blueprint for Regenerative, Resilient, and Inclusive Business

Sudipta Banerjee Sudipta Banerjee

Sudipta Banerjee

Business Excellence | Supply Chain Management | ESG

Published Jul 12, 2025
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Abstract

Environmental, Social, and Governance (ESG) frameworks have historically evolved as compliance-oriented tools focused primarily on risk mitigation, disclosure, and investor assurance. While this approach, often referred to as ESG 1.0 served as a foundational step, it has increasingly proven insufficient in addressing the scale and urgency of today’s systemic challenges, including climate change, inequality, biodiversity loss, and geopolitical volatility.

In response, a more evolved paradigm, ESG 2.0, is gaining traction. ESG 2.0 reimagines sustainability not as a peripheral obligation but as a strategic imperative embedded across governance, innovation, operations, and culture. It emphasizes double materiality, stakeholder capitalism, technology integration, and regenerative value creation.

Drawing from global insights and country-specific realities, particularly India’s socio-economic fabric, climate vulnerabilities, and informal workforce, this paper explores ESG 2.0 as the next frontier in sustainable business transformation. Grounded in academic contributions such as Passas (2024), and illustrated through real-world sectoral use cases, we argue that ESG 2.0 is both a competitive differentiator and a necessary response to mounting global pressures. By examining its conceptual foundations, governance structures, and implementation enablers, we propose ESG 2.0 as a dynamic, context-sensitive blueprint for inclusive and future-ready capitalism in both developed and emerging economies.

 1. Introduction: From CSR to ESG 2.0

Corporate Social Responsibility (CSR), which began as a voluntary ethical initiative in the 1950s, has undergone a significant transformation over the decades. Initially rooted in philanthropy and moral responsibility, CSR served as a vehicle for corporate goodwill, largely disconnected from core business functions. However, growing public scrutiny, evolving stakeholder expectations, and an increased focus on sustainability indicators necessitated a shift toward more structured, performance-oriented models. This evolution gave rise to Environmental, Social, and Governance (ESG) frameworks that emphasize measurable accountability, transparency, and risk assessment (Passas, 2024).

ESG 1.0 emerged as a standardized approach to assess non-financial risks and disclosures. It offered valuable tools for investors and regulators to understand how environmental and social issues might affect a company’s bottom line. Nevertheless, ESG 1.0 remained largely compliance-driven, focused on backward-looking metrics and often implemented in silos. The framework proved inadequate in addressing systemic, interdependent crises such as climate change, social inequity, biodiversity degradation, and geopolitical fragility.

In response to these limitations, ESG 2.0 has emerged as a paradigm shift from compliance to value creation, from risk avoidance to resilience-building, and from shareholder primacy to multi-stakeholder accountability. ESG 2.0 recognizes sustainability as a core business driver and integrates it deeply into governance, strategy, operations, product innovation, and talent management. It embraces dynamic, forward-looking data, contextual materiality, and regenerative design principles to align business performance with planetary and societal well-being (Whelan et al., 2022).

Crucially, ESG 2.0 is not a one-size-fits-all framework. It adapts to regional realities, economic models, and developmental stages. In emerging economies like India, where development deficits coexist with rapid industrialization and climate vulnerability, ESG 2.0 offers a practical and inclusive roadmap for businesses to align with global expectations while addressing local imperatives.

 2. ESG 1.0 vs. ESG 2.0: Key Shifts

Over the past decade, Environmental, Social, and Governance (ESG) frameworks have become central to how companies communicate their non-financial performance. Initially driven by investor pressure and compliance requirements, ESG reporting helped mainstream the idea that business responsibility extends beyond shareholders to a wider ecosystem of stakeholders. However, this early phase, what is now referred to as ESG 1.0, has reached its limits in terms of impact and effectiveness. The current global context, shaped by complex systemic risks such as climate change, inequality, resource stress, and social unrest, demands a new approach: ESG 2.0.

ESG 1.0: A Foundation Built on Compliance

ESG 1.0 was essential in building the baseline for corporate transparency. It centered around static, backward-looking disclosures often compiled once a year in sustainability or integrated reports. These reports typically focused on meeting external benchmarks, third-party ratings, and investor scorecards. The ESG agenda in this phase was reactive, often managed by CSR teams or compliance officers, and largely disconnected from core business strategy or operational decision-making.

While ESG 1.0 helped institutionalize reporting norms and build basic awareness of environmental and social risks, it often treated sustainability as a reputational tool rather than a strategic differentiator. Its limitations became increasingly clear as global challenges intensified, demanding more dynamic, forward-looking, and inclusive models of value creation.

ESG 2.0: From Reporting to Relevance

ESG 2.0 marks a decisive shift from static disclosure to strategic integration. It repositions ESG from a peripheral reporting obligation to a central operating principle. In this new model, sustainability is embedded into corporate governance, strategy, innovation, and risk management. It is not an annual exercise, but a continuous, real-time process that informs how a business allocates resources, designs its products, manages its workforce, and interacts with its stakeholders.

One of the key distinctions of ESG 2.0 is its focus on performance and purpose. Rather than merely reporting past performance, companies adopting ESG 2.0 frameworks ask deeper questions: How does our business model contribute to or mitigate systemic risk? How are we enabling long-term societal resilience? What legacy are we building in terms of community value, environmental regeneration, and economic inclusion?

Technology plays a vital role in this transformation. ESG 2.0 leverages digital platforms, real-time analytics, geospatial tools, and AI to create decision-useful data. Companies can now identify hotspots of risk, track emissions down the supply chain, monitor labor conditions, and respond to stakeholder concerns with greater precision and accountability.

Expanding the Stakeholder Universe

Another critical element of ESG 2.0 is its broader understanding of materiality. Where ESG 1.0 focused largely on issues that posed financial risk to the firm, ESG 2.0 adopts a double materiality lens, considering both how external factors impact the company and how the company impacts society and the environment. This perspective acknowledges that stakeholder trust, ecosystem health, and inclusive governance are not externalities; they are core to long-term business viability.

In this framework, the voices of gig workers, informal sector vendors, local communities, indigenous groups, and future generations are brought into the materiality assessment. ESG 2.0 is therefore not just more data-driven; it is more human-centered, responsive, and locally grounded.

Implications for Leadership and Governance

For ESG 2.0 to succeed, it must be championed from the top. Boardrooms and executive teams need to go beyond oversight to actively embed ESG into their decision frameworks. This includes aligning executive compensation with ESG outcomes, integrating sustainability into capital expenditure planning, and elevating ESG intelligence into core business dashboards. It also requires shifting from a shareholder-only mindset to a broader commitment to shared prosperity and regenerative growth.

This shift is not just aspirational, it is already underway. Leading companies around the world are redesigning their supply chains for resilience, shifting toward circular production models, investing in community partnerships, and defining purpose statements that reflect societal relevance. These pioneers understand that in a world of rising uncertainty, ESG is not a burden, it is a source of competitive advantage and systemic strength.

3. Core Principles of ESG 2.0

The transition from ESG 1.0 to ESG 2.0 is underpinned by a series of foundational principles that reshape how organizations perceive risk, responsibility, and opportunity. ESG 2.0 is not a single template it is a strategic framework that aligns business value creation with the needs of people, planet, and future generations. Each principle expands the role of ESG beyond compliance to embedded, systemic transformation.

3.1 Double Materiality: One of the most important theoretical and practical advancements in ESG 2.0 is the concept of double materiality. Introduced by the European Union’s Corporate Sustainability Reporting Directive (CSRD) and operationalized by the European Financial Reporting Advisory Group (EFRAG), double materiality requires companies to assess not only how environmental and social issues affect their financial performance (outside-in), but also how their operations affect the environment and society (inside-out) (EFRAG, 2024).

For instance, climate-induced disruptions such as erratic monsoon patterns can affect agricultural output, escalating input costs and threatening the profitability of food processing companies is an example of financial materiality. Concurrently, practices like excessive groundwater extraction by textile manufacturers can degrade local ecosystems and strain community water access, reflecting impact materiality. ESG 2.0 underscores that addressing only one side of this dual equation results in fragmented risk management and overlooks opportunities for integrated, sustainable value creation.

3.2 Contextual ESG: Global ESG frameworks often assume a uniform economic and social baseline, which does not reflect the realities of emerging economies. ESG 2.0 emphasizes the importance of local context in shaping material issues and sustainability priorities. In India, for instance, informal labor markets, caste dynamics, and rural-urban disparities require a different lens than those applied in developed markets (Pradeep et al., 2024).

Contextual ESG includes place-based assessments, cultural sensitivity, and the development of sector-specific benchmarks that account for local variations in energy use, labor conditions, resource availability, and social vulnerability. It also calls for the inclusion of grassroots voices in ESG decision-making, ensuring that sustainability strategies are not just technically robust but socially relevant.

3.3 Embedded Governance: Governance under ESG 2.0 goes beyond oversight—it requires integration into board-level responsibilities and leadership metrics. Companies like Danone have set a precedent by linking executive remuneration to ESG performance indicators, such as carbon reduction, employee inclusion, and community investment (Marais et al., 2023).

This approach ensures that sustainability is not managed by a separate function but is central to how success is defined and rewarded across the organization. Governance structures now include sustainability committees, ESG-literate board members, and stakeholder advisory panels that help translate sustainability goals into actionable business strategies.

3.4 Stakeholder Capitalism: ESG 2.0 aligns closely with the principles of stakeholder capitalism, which prioritizes value creation for all stakeholders, not just shareholders. Drawing on stakeholder theory (Parmar et al., 2010), this model recognizes the interdependence between companies and their broader operating environments, including workers, communities, suppliers, ecosystems, and regulators.

Under this model, businesses are expected to listen to and engage with stakeholders regularly, co-create solutions to shared challenges, and report transparently on their social and environmental footprints. This shift also implies a redefinition of fiduciary duty from maximizing short-term financial returns to delivering sustained stakeholder value.

3.5 Tech-Enabled ESG: Technology is a core enabler of ESG 2.0, providing tools for real-time measurement, transparency, and accountability. Artificial Intelligence (AI) is used for climate risk modeling, supply chain optimization, and impact forecasting. Blockchain enables immutable record-keeping for traceability in sourcing, labor practices, and emissions reporting (Friedman & Ormiston, 2022).

Digital twins, Internet of Things (IoT) sensors, and geospatial platforms are also being deployed to track biodiversity, water use, and carbon emissions. These technologies move ESG beyond lagging indicators to predictive analytics, enhancing decision-making and stakeholder confidence.

3.6 Regenerative Design: While ESG 1.0 often emphasized doing less harm, ESG 2.0 aspires to actively restore and regenerate. Inspired by principles of regenerative economics and doughnut economics (Raworth, 2017), this approach seeks net-positive outcomes for both people and planet.

Regenerative design goes beyond sustainability to create circular systems, resilient ecosystems, and inclusive livelihoods. Examples include packaging that biodegrades into the soil, agroforestry supply chains that sequester carbon and increase farmer income, and infrastructure that enhances community resilience to climate shocks.

Thus, the core principles of ESG 2.0 represent a comprehensive, adaptive, and forward-looking approach to business responsibility and performance. They reframe ESG from a set of obligations to a powerful engine for innovation, resilience, and equitable growth.

 4. Use Cases and Impact Stories

The transition to ESG 2.0 is not merely conceptual, it is actively unfolding across sectors and geographies. This section illustrates the practical application of ESG 2.0 principles through selected case studies that reveal both the risks of ESG non-compliance and the opportunities associated with integrated, impact-driven strategies.

4.1 Textiles & Apparel (India): India's textile sector, one of the country’s largest employment generators, faces increasing scrutiny from both regulators and global buyers. Under ESG 2.0, textile firms are expected not only to meet environmental norms but to play a proactive role in social inclusion and supply chain transparency.

  • Financial Materiality: Several textile units in Tamil Nadu have faced export restrictions due to violations of wastewater discharge norms, leading to revenue losses and reputational damage (Greenpeace, 2023).

  • Impact Materiality: Environmental degradation from untreated dye effluents contaminates local rivers, while the employment of underage workers in subcontracted units remains prevalent in Tier-2 and Tier-3 towns. These impacts pose long-term risks to community health and workforce sustainability.

Adopting ESG 2.0 would involve digitized traceability, water recycling technologies, and inclusive workforce practices that address both risks and value creation.

4.2 Digital Platforms: India's rapidly growing digital economy, particularly in e-commerce and fintech, exemplifies how ESG risks and opportunities manifest in intangible assets and algorithmic processes.

  • Financial Materiality: High-profile data breaches involving customer or seller data can significantly erode brand value and lead to penalties under the Digital Personal Data Protection Act (NITI Aayog, 2022).

  • Impact Materiality: Biased algorithms that fail to account for socio-economic or regional disparities have been shown to disproportionately exclude women-led, tribal, or rural MSMEs from accessing digital markets.

An ESG 2.0 approach for digital platforms would emphasize responsible algorithm design, inclusive onboarding strategies, and data governance frameworks rooted in transparency and equity.

4.3 Global Leaders in ESG 2.0 Integration

  • Patagonia: A pioneer in integrating environmental ethics into business, Patagonia operationalizes circularity through recycled materials, repair services, and lifetime warranties. The company’s carbon neutrality roadmap, combined with a transparent supply chain model, demonstrates the regenerative ethos of ESG 2.0 (Michel et al., 2019).

  • Unilever: With its Sustainable Living Plan, Unilever realigned its business strategy to focus on long-term societal impact. It embedded ESG metrics into brand positioning, product formulation, and supply chain development, achieving both environmental savings and market growth (Lawrence & Rasche, 2019).

  • Danone: The company has institutionalized ESG within its governance architecture. By linking executive compensation and board oversight to sustainability metrics, Danone has reinforced accountability and transparency. Its B Corp certification further underscores a systemic commitment to stakeholder capitalism (Izquierdo-Yusta et al., 2023).

These cases illustrate how ESG 2.0 transcends traditional boundaries, moving from siloed CSR initiatives to integrated enterprise-wide strategy. They demonstrate how companies can lead not just in compliance, but in shaping inclusive and regenerative market ecosystems.

 5. ESG 2.0 in the Indian Context

India’s socio-economic complexity and environmental vulnerability make ESG 2.0 not merely a forward-looking option but an urgent strategic imperative. Unlike developed economies where ESG has evolved within relatively formalized, industrialized, and resource-rich contexts, India must design sustainability frameworks that are inclusive, context-sensitive, and deeply adaptive.

India faces three interlinked structural realities:

  • Informality of Work: Over 90% of India’s workforce is informal, with limited social protection, job security, or access to skilling (ILO, 2023). ESG frameworks that overlook these dynamics risk excluding the majority of the labor force from the sustainability transition.

  • Climate Vulnerability: Climate change already affects more than 600 million Indians, especially those in agriculture, coastal zones, and heat-prone urban areas (TERI, 2024). Businesses operating in such geographies face increased operational risk, supply chain volatility, and reputational pressure.

  • Access Inequities: Significant disparities persist in access to clean energy, affordable finance, quality education, and digital infrastructure—particularly among women, tribal communities, and rural enterprises.

Against this backdrop, ESG 2.0 offers a pragmatic and regenerative pathway by realigning sustainability with development justice and innovation. Key levers include:

  • Green MSMEs: As the backbone of India's economy, MSMEs must be central to any ESG strategy. Initiatives such as SEBI’s BRSR Lite enable small enterprises to report on sustainability without the burden of complex compliance. ESG-linked financing schemes by SIDBI and YES Bank are incentivizing cleaner technologies and labor equity within smaller firms.

  • Inclusive Technology Platforms: Digital public infrastructure initiatives like the Open Network for Digital Commerce (ONDC) and the Unified Logistics Interface Platform (ULIP) have the potential to democratize access to markets, logistics, and data for small and underrepresented sellers. ESG 2.0 calls for embedding algorithmic fairness, data transparency, and social safeguards into these platforms.

  • Circular and Regenerative Business Models: Indian enterprises, especially in sectors like textiles, agri-processing, and consumer goods, are well-positioned to lead circular innovation. From using biodegradable packaging to sourcing locally and designing for reuse, ESG 2.0 supports community-centered, low-waste ecosystems. Examples include handloom cooperatives adopting natural dyes or agri-startups using crop waste for packaging.

  • Place-Based ESG Intelligence: India's diversity requires ESG intelligence that is geospatial, multilingual, and grounded in local realities. Climate dashboards, caste-disaggregated labor data, and localized water stress indices can inform materiality assessments and ESG strategy.

In essence, India’s path to ESG 2.0 must be one of “equity in transition” ensuring that sustainability and digitalization do not widen existing divides but instead catalyze inclusive growth. When ESG is embedded with social equity, cultural sensitivity, and technological innovation, it can transform India’s development trajectory into one that is both globally competitive and locally empowering.

 6. Governance and Accountability

In the ESG 2.0 paradigm, governance is not a peripheral compliance mechanism but a central pillar that drives strategic alignment, ethical conduct, and systemic accountability. Traditional governance models in ESG 1.0 often treated sustainability as an external obligation managed through periodic disclosures. In contrast, ESG 2.0 demands that governance structures internalize sustainability and translate it into performance, oversight, and culture.

To achieve this, companies must go beyond symbolic committees and boilerplate disclosures. Effective ESG governance involves embedding sustainability into the DNA of leadership and decision-making. Key strategies include:

  • Linking ESG Metrics to Executive Performance: Leading companies like Danone have pioneered the integration of ESG indicators into executive compensation and performance evaluations (Izquierdo-Yusta et al., 2023). This ensures that sustainability goals are not aspirational add-ons but core determinants of leadership accountability. Metrics may include carbon footprint reduction, diversity ratios, human rights due diligence, and supplier sustainability ratings.

  • Embedding Sustainability Committees at Board Level: According to the Harvard Business Review (2022), companies with dedicated ESG or sustainability committees at the board level demonstrate higher resilience, stakeholder trust, and regulatory preparedness. These committees are tasked with overseeing climate risk, human capital strategy, ethical sourcing, and community engagement moving ESG from the periphery to the core of governance.

  • Independent ESG Audits and Assurance: As ESG data becomes central to investor confidence and stakeholder decision-making, ensuring its reliability is paramount. Passas (2024) emphasizes the role of third-party audits in providing assurance on ESG disclosures. Independent verification enhances transparency, mitigates greenwashing, and builds institutional credibility.

  • Dynamic Risk and Opportunity Governance: ESG 2.0 requires boards to not only manage downside risks (e.g., compliance breaches, reputational damage) but also identify upside opportunities (e.g., sustainability-linked innovation, impact investing). Scenario analysis, double materiality mapping, and climate stress-testing are becoming standard tools in progressive governance models.

  • Cross-Functional Integration and Training: Governance should not be siloed within sustainability departments. Leading organizations conduct ESG training for board members and integrate ESG roles across finance, HR, operations, and procurement. This cross-functional approach fosters collective ownership of sustainability outcomes.

  • Stakeholder Accountability Mechanisms: ESG 2.0 governance includes mechanisms for stakeholder input and redressal. Advisory councils comprising civil society, labor unions, and community leaders can guide materiality assessments and ethical decision-making.

In sum, governance in ESG 2.0 is about systemic stewardship. It redefines fiduciary duty to include long-term planetary and societal health, positioning the boardroom as a catalyst for sustainable transformation. By operationalizing transparency, accountability, and inclusivity at the top, companies can ensure ESG goals cascade across all levels of the enterprise.

7. Challenges and Strategic Opportunities

The transition to ESG 2.0 is complex, particularly in diverse and dynamic economies like India. While the promise of ESG 2.0 lies in its ability to drive systemic resilience and inclusive growth, businesses must navigate a landscape marked by structural, informational, and cultural challenges. Addressing these barriers effectively can unlock significant strategic and reputational value.

Barriers to ESG 2.0 Implementation:

  • Fragmented Regulatory Requirements: ESG-related regulations in India span multiple jurisdictions, including SEBI, the Ministry of Corporate Affairs, RBI, and various state-level agencies. This creates compliance burdens and confusion for businesses, particularly MSMEs. The lack of harmonized standards can also hinder comparability and alignment with global frameworks like the EU CSRD or ISSB.

  • Inconsistency and Gaps in ESG Data: A major bottleneck for ESG integration is the inconsistent quality, granularity, and availability of non-financial data. Many firms, especially in the informal sector, lack the digital infrastructure to generate real-time ESG data. Inadequate sectoral benchmarks and the absence of interoperable ESG data platforms exacerbate the problem.

  • Short-Termism in Capital Markets: Despite growing investor interest in ESG, traditional capital markets remain largely focused on quarterly performance metrics. This undermines investments in long-term sustainability and regeneration strategies. Many firms face pressure to deprioritize ESG goals in favor of short-term shareholder returns.

  • Capacity and Awareness Gaps: Board members, fund managers, and operational leaders often lack sufficient ESG literacy, limiting their ability to implement and oversee meaningful sustainability strategies.

Strategic Opportunities Enabled by ESG 2.0:

  • Competitive Positioning in Green Trade: As trade regulations increasingly incorporate environmental and social standards (e.g., EU Carbon Border Adjustment Mechanism), firms with advanced ESG practices will enjoy preferential market access. Indian exporters can leverage ESG 2.0 to gain a foothold in sustainable global supply chains.

  • Attraction and Retention of Next-Gen Talent: Millennials and Gen Z professionals are more likely to join and remain with organizations aligned to their environmental and social values. Companies with credible ESG programs can position themselves as employers of choice in a talent-constrained market.

  • Access to Climate Finance and Impact Capital: ESG 2.0 compliance opens doors to a growing pool of green bonds, blended finance, and sustainability-linked loans. Impact investors and development finance institutions are increasingly directing capital toward ESG-aligned enterprises that demonstrate tangible social and environmental benefits.

  • Innovation and Market Differentiation: ESG 2.0 encourages the design of new business models—such as circular packaging, energy-efficient logistics, and inclusive financial products—that differentiate firms and create new revenue streams.

  • Stronger Risk Management and Resilience: ESG 2.0 enables firms to identify systemic vulnerabilities ranging from climate disruptions to labor unrest and build operational resilience through data-informed, proactive planning.

In essence, the successful navigation of ESG 2.0 challenges can yield competitive, financial, and societal dividends. Firms that embrace this transition not only enhance stakeholder trust and brand equity but also position themselves at the forefront of a regenerative global economy.

 8. Conclusion: ESG 2.0 as a Business Imperative

ESG 2.0 represents a paradigm shift in how sustainability is integrated into the DNA of business. Far from being a compliance obligation or a branding exercise, it is a holistic framework that equips enterprises to thrive in a world marked by uncertainty, inequality, and ecological crisis. As companies face increasing scrutiny from regulators, investors, consumers, and communities, ESG 2.0 provides a strategic roadmap to manage risk, unlock innovation, and build resilient value chains.

The ESG 2.0 model fundamentally redefines what it means to be a responsible business. It calls for aligning profit with purpose, embedding sustainability in decision-making, and designing products and services that generate net-positive impacts for people and the planet. As the global economy transitions toward more sustainable and inclusive systems, firms that adopt ESG 2.0 will not only future-proof their operations but also lead the charge in redefining capitalism for the 21st century.

India, in particular, stands at a critical juncture. With its vast informal economy, demographic diversity, and developmental challenges, the stakes are higher and so are the opportunities. ESG 2.0 offers a pathway for Indian companies to contribute to national goals such as climate resilience, equitable growth, and digital inclusion while positioning themselves competitively in global markets.

As Passas (2024) aptly asserts, ESG 2.0 is the natural evolution of decades of corporate social responsibility—an architecture grounded in ethics but engineered for systemic transformation. It enables organizations to move beyond incremental change and toward bold, regenerative strategies that respond to humanity’s most pressing needs.

In the decade ahead, the winners will not be those who do the minimum to comply with ESG checklists but those who reimagine their business models through the lens of shared value, stakeholder trust, and planetary stewardship. ESG 2.0 is not just good for society it is good strategy, sound governance, and smart economics.

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