IT services companies including Infosys, Mindtree, Tata Consultancy Services and Tech Mahindra lead in terms of ESG (environmental, social and governance) factors, according to a new Crisil scorecard. India Cements, Vodafone Idea, Godfrey Philips, Sun Pharmaceuticals and Adani Gas are among the laggards, per the ESG Gauge launched by the analytics and rating company.
“Information technology (IT) and financial companies have relatively high overall ESG scores, given their inherently lower natural-resource intensity, resulting in lower emissions, waste generation and water usage. These companies are also high employment generators and have relatively better disclosures,” Crisil said in a statement.
“In contrast, oil and gas, chemicals, metals and mining, and cement companies have lower ESG scores, reflecting high natural-resource intensity, and thereby higher emission levels, extractive use of natural resources, potential adverse environmental and community impact, and generally more moderate levels of disclosure,” it added.
The ESG score factors in the track record of, and trends and disclosure standards followed by, 225 listed companies based on information available in the public domain, including from third-party providers. The scores are based on Crisil’s proprietary framework and assigned on a scale of 1-100, with 100 denoting best-in-class ESG performance. The current evaluation analyses three annual reporting cycles through fiscal 2020.
Ashu Suyash, MD & CEO, Crisil said: “ESG is already playing a material role in the decisions of governments, regulators, investors, lenders and corporates. This will not only transform the investment management industry, but also redefine Corporate India’s approach to risk management for sustainable value creation. Our survey shows over 80 per cent of issuers and institutional investors intend to integrate ESG in their decision-making.”
Low on gender diversity
According to the report, gender diversity at the board level and in the workforce of companies assessed remains low at 17 per cent and 13 per cent, respectively. Independent director representation, a tenet of corporate governance crucial for protecting the interests of all stakeholders, is also a modest 47 per cent.
ESG investments up
However, ESG-based investment decisions are picking pace. The total AUM of India’s 10 ESG funds was ₹10,473 crore as of March 31, 2021. It has increased more than four times over the past three years, driven by the inception of multiple ESG funds during this period. In India, ESG is expected to grow at least at 15 per cent annually, to reach over $60 billion in 2025. Sustainable bond issuances by Indian companies are growing rapidly over the last few years. In 2020, nine companies had collectively raised $2.33 billion by issuing sustainable, especially green, bonds.
“Investors and corporates are in a prime position to channel investments into areas related to ESG and benefit from the gaps in the current market. Companies that are trying to solve the crises of the not-so-distant future will be rewarded with competitive advantage. This could mean creating new products or launching services that address emerging environmental and social needs or open currently unserved customer segments,” the report said.