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The Covid-19 pandemic has amplified the need to focus on sustainable investing. And though India Inc is embracing sustainability initiatives, experts believe that a regulatory push will make it more effective.
A rise in the number of Indian signatories to the UN-supported international Principles for Responsible Investing (PRI) is a clear sign that the first step has been taken. The signatories commit themselves to incorporate environmental, social, and governance (ESG) factors in investment/ownership decisions.
However, an assessment of the ESG disclosures of the top 100 Indian companies reveals that it will take time before one gets meaningful insights into their ESG initiatives.
Based on their market capitalisation as of March 31, 2020, only about 50 companies made voluntary sustainability disclosures. These disclosures follow global sustainability frameworks like Global Reporting Initiatives (GRI), International Integrated Reporting Council (IIRC), and Sustainable Development Goals (SDGs), which provide meaningful insights into sustainability initiatives.
The Business Responsibility Report (BRR) framework, which is a must in annual reports, is like a self-compliance checklist. Standardisation, comparability, and transparency are a few of the key challenges faced in ESG analysis.
Interestingly, cement and metal companies perform well on the ESG framework despite being seen as polluters. More regulatory push has possibly brought this about. Most other sectors have either not fully appreciated the ESG initiatives or simply lack disclosures.
Says Nitin Bhasin, Head of Research, Institutional Equities, Ambit Capital: “Companies will have to gear up as SEBI mandates a detailed disclosure format BRSR (Business Responsibility and Sustainability Reporting) for ESG reporting from FY23 for top 1,000 companies.”
He says that over the last decade, regulators have taken stringent action to address financial reporting or governance irregularities, and the same diligence is needed for sustainability. For instance, companies currently do not disclose targets for reduction in energy consumption under the BRR. Experts agree that a regulatory framework could bring about change.
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