The Covid-19 pandemic has amplified the need to focus on sustainable investing. And although India Inc adopts sustainability initiatives, experts believe that a regulatory push will make it more effective.
The increase in the number of Indian signatories to the UN-backed International Principles for Responsible Investment (PRI) is a clear sign that the first step has been taken. Signatories commit to integrating environmental, social and governance (ESG) factors into investment / ownership decisions.
However, an assessment of the ESG disclosures of India’s top 100 companies reveals that it will take time to gain meaningful insight into their ESG initiatives.
Based on their market capitalization as of March 31, 2020, only around 50 companies have made voluntary sustainability disclosures. These disclosures follow global sustainable development frameworks such as the Global Reporting Initiatives (GRI), the International Integrated Reporting Council (IIRC) and the Sustainable Development Goals (SDGs), which provide useful information on sustainable development initiatives.
The Business Responsibility Report (BRR) framework, which is a must in annual reports, is like a self-compliance checklist. Standardization, comparability and transparency are some of the main challenges encountered in ESG analysis.
Interestingly, cement and metallurgy companies perform well in the ESG framework despite being considered polluters. More regulatory pressure may have caused this. Most other sectors have not fully appreciated ESG initiatives or are simply lacking in disclosure.
According to Nitin Bhasin, Head of Research, Institutional Equities, Ambit Capital: “Companies will need to prepare, as SEBI imposes a detailed BRSR (Corporate Responsibility and Sustainability Reporting) disclosure format for ESG reports for fiscal year 23. for the first 1,000 companies.
He says that over the past decade, regulators have taken strong action to address financial reporting or governance irregularities, and the same diligence is needed for sustainability. For example, companies currently do not disclose any energy reduction targets under the BRR. Experts agree that a regulatory framework could bring about changes.