Crisil Says India Inc.’s Climate Disclosures Remain Weak

Indian companies’ environmental impact and emission disclosures remain weak, highlighting “glaring” unpreparedness towards climate risk, according to Crisil.

Of the three ESG parameters—environment, social and governance—Indian companies scored the lowest on ‘E’, Crisil Research said in its Sustainability Yearbook 2022. Average scores for ‘E’ was 45, compared with 50 for ‘S’ and 66 for ‘G’.

Crisil assessed 586 companies for fiscal 2021, more than double of the 225 companies it evaluated in its ESG coverage the previous year. It found that poor disclosures, particularly about greenhouse gas emissions, dragged the environment scores down.

“One of the key climate risks we are battling is the rise in average temperatures, or global warming, a significant proportion of which could be attributed to GHG emissions,” it said. “Naturally then, it is also one of the most critical parameters while evaluating the environmental risk profile of a company.”

In India, only one in every five companies reported their Scope 1 and Scope 2 greenhouse gas emissions—that are either direct emissions or indirect ones, such as from the energy those companies purchase. The disclosures on Scope 3 emissions—that emerge from all activities in the company’s value chain—were even worse. Only 63 out of the 586 companies published that data.

There was a lack of quantitative disclosures on emissions by carbon-intensive sectors like power, oil and gas, airlines and textiles, Crisil said, making it even harder to assess their performance on this parameter.

It also noted that companies in the thermal power sector have continued to see an increased emission trend, implying that pollution control measures and engagements with investor-led climate initiatives like Climate Action 100+ are yet to fructify.

Companies are also relatively unprepared for the kind of climate risks that may emerge from India in the coming years. Only 22 companies were able to disclose their exposure to physical climate risk.

“This could be due to a lack of technical expertise and internal capability to conduct exercises such as scenario analyses,” Crisil said. Besides, just 18 companies had set net-zero targets for the near term till 2035, while another 23 have committed to setting such goals.

Sectorally, non-polluting sectors such as banking, finance and insurance, information technology and renewable power scored significantly better than the rest of the pack.

Overall though, ESG scores across Crisil’s coverage universe saw gradual improvement. Although, governance mostly formed the bedrock of that improvement.

“Governance remains the cornerstone of not just ESG, but overall corporate performance,” Suresh Krishnamurthy, senior director at Crisil Research said. “This is amply clear from the fact that the absolute operating profit of the top 10 companies on the ‘G’ parameter saw a 23% compound annual growth rate between fiscals 2019 and 2021, whereas that of the bottom 10 logged a negative 7% CAGR.”

The rating agency is hopeful of further improvements in companies’ ESG profiles as the Securities and Exchange Board of India mandates sustainability disclosures for the top 1,000 listed firms.

SEBI’s implementation of the Business Responsibility and Sustainability Reporting kicked in from April 1, 2022, and will nudge companies to make more quantitative disclosures, Miren Lodha, director, Crisil Research told BloombergQuint.

“In the next 6-8 months, we’ll see BRSR reports come out. And we are hopeful that we will have much more quantitative and specific information on sustainability available,” he said. “The only thing that remains to be seen is how well companies act. There will be a learning curve for the companies. We expect it to take about a couple of years before companies become comfortable with their entire sustainability reporting.”

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