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Market watchdog SEBI has come out with a consultation paper in a bid to ease the functioning of <keyword id="22476006" type="General" weightage="100" keywordseo="ESG-Rating-Providers" source="keywords">ESG Rating Providers</keyword> (ERPs), pushing for the development of a <keyword id="23760035" type="General" weightage="20" keywordseo="subscriber-pays-model" source="keywords">subscriber-pays model</keyword>. As of July 2024, nine ERPs are registered with SEBI to operate in the country. These include <keyword id="23760037" type="General" weightage="20" keywordseo="CRISIL-ESG-Ratings" source="keywords">CRISIL ESG Ratings</keyword> &amp; Analytics, ESG Risk Assessments and Ratings, GlobeTrend Climate Impact Institutional Investor Advisory Services, <keyword id="23760038" type="General" weightage="20" keywordseo="NSE-Sustainability-Ratings" source="keywords">NSE Sustainability Ratings</keyword> and Analytics, PGS Impact, Pragati Development Consulting, CARE ESG Ratings, and SES ESG Research. Per the paper's proposal, ERPs won't be required to disclose ESG (environmental, social, and governance) ratings to the bourses, provided they confirm that there is no non-public information that could potentially affect the rating. Another proposal was the simultaneous sharing of the ESG rating reports both to the rated companies and to the subscribers who pay to access these reports. ERPs should ensure that rated entities, their group companies, or associates cannot subscribe to their own ESG ratings, SEBI said in its consultation paper. Some of the other suggestions put forth by SEBI include: 1. Companies will have a specific timeframe to respond to the ESG report, and any such comments should be included in the report as an addendum. 2. In case the ERP does not agree with the remarks issued by the rated company, they can add their comments to the report as well. 3. ERPs can rate unlisted issuers or other products, provided they meet specific guidelines from relevant regulators. SEBI is receiving public comment on these proposals until November 15, 2024. <h2>Steady returns </h2>Of the 11 ESG mutual fund schemes available to Indian mutual fund investors, the Quant ESG Equity fund has generated the highest returns of about 45.44% over one year, data from ValueResearch showed. Simply put, had you invested Rs 10,000 every month in this fund for three years, you would have accumulated a corpus of Rs 5,47,525. Over three years, the returns on this fund come to around 26%. This was followed by the ICICI Pru ESG Exclusionary Strategy fund, which yielded 44.73% returns over the same period. However, over ultra-short terms, i.e., 1-3 months, ESG funds have largely delivered negative returns, underscoring their suitability only as a long-term investment avenue. Only the SBI ESG Exclusionary Strategy Direct Fund and Quantum ESG Best In Class Strategy Direct Fund have been around for 5 years, during which they have generated returns of about 16.67% and 18.7%, respectively. <keyword id="23760036" type="General" weightage="20" keywordseo="ESG-mutual-funds" source="keywords">ESG mutual funds</keyword> typically select and invest in companies that are ESG-compliant, i.e., who weave in environmental conversation, social welfare, and robust <keyword id="20392393" type="General" weightage="20" keywordseo="corporate-governance" source="keywords">corporate governance</keyword> practices into their working philosophy and work ethos, while simultaneously generating decent financial returns for stakeholders as well.

SEBI mulls measures to facilitate ease of doing business for ESG Rating Providers (ERPs)

Climate change, poverty, inequality, hunger, and multiple other global challenges continue to hamper our journey towards a sustainable future. And businesses play a crucial role in making or breaking the situation. In this regard, sustainability reporting or environmental, social, and governance (<keyword id="77363" type="General" weightage="100" keywordseo="esg" source="Orion">ESG</keyword>) disclosures mirror how the private sector is influencing a positive change. Fortunately, <keyword id="3658" type="General" weightage="80" keywordseo="india" source="Orion">India</keyword> Inc's ESG ratings continuously boost, compelled by enhanced disclosures and performance, as reported by <keyword id="6359483" type="General" weightage="80" keywordseo="crisil" source="Orion">CRISIL</keyword>'s analysis. Based on fiscal 2021 data, a risk assessment of 586 Indian firms across 53 industries shows that most of them have improved their ESG ratings compared to the previous year, owing to more important disclosures and improved performance on several factors. Yet, the fact remains that only one-fifth of the 586 companies assessed published sustainability reports in 2021, shows the report. This is an improvement, as 12 new companies published these disclosures for the first time compared to last year. In FY 2022-23, the situation is expected to change drastically as the <keyword id="63783" type="General" weightage="50" keywordseo="securities-and-exchange-board" source="Orion">Securities and Exchange Board</keyword> of India (SEBI) has mandated ESG disclosures for the top 1000 listed companies. As per the CRISIL report, the hiking ESG scores are visible in renewable energy consumption, gender diversity, and Board independence. When the analytics firm compared this year’s data with the 225 firms analysed last year, 14 exhibited a substantial positive deviation—more significant than a 5-point rise in score. However, three companies showed a significant negative divergence with more than a 5-point decline in the score, while 139 remained generally steady. According to the most recent evaluation by the firm, just 14 organisations fall under 'leadership' classification, while 108 were classified under 'strong' and 73 under the 'below average' and 'weak' classes. "Leaders on ESG have demonstrated a clear commitment towards sustainability and have consistently delivered superior performance. For ESG to truly be embedded and practised in spirit, all stakeholders have to work collaboratively and create a favourable environment for ESG in India," says <keyword id="9407585" type="General" weightage="50" keywordseo="amish-mehta" source="Orion">Amish Mehta</keyword>, Managing Director and CEO of CRISIL Ltd. Globally, the conversation about the environment has centred on greenhouse gas (<keyword id="171507" type="General" weightage="50" keywordseo="ghg" source="Orion">GHG</keyword>) emissions as climate change remains a pressing risk for the business sector. However, only one in five enterprises in India disclosed their Scope 1 and Scope 2 GHG emissions. The report reveals that the disclosure of Scope 3 emissions was worse: just 63 of 586 firms provided this information. “In addition to focussing in the near term on targeted actions such as decarbonisation, a mindset shift is necessary to transform from merely complying to creating value and structurally mitigating risk,” adds Amish Mehta. India is one of 80 per cent of the world's countries committed to Net-Zero and the investment required to make this happen will be substantial! It entails minimising GHG emissions in the next 50 years, which have expanded fourfold in the previous 20 years. Over the next seven years, CRISIL estimates that India will need to invest Rs 22-25 lakh crore in decarbonisation. This involves significant investments in renewable assets and battery technology. Beyond 2030, investments will more than triple in hydrogen, CCUS, pump hydro, geothermal, and biomass-linked technologies, where India's potential is enormous but primarily untapped, says the report. As of March 2022, 82 corporations have vowed to follow the path of net-zero emissions, a 50 percent increase from 2019. As per the non-profit Climate Disclosure Project (CDP), India ranks sixth in the world in this category.

Only one-fifth of India Inc publishes sustainability reports in 2021, but ESG disclosures are improving gradually: CRISIL report

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SEBI mulls measures to facilitate ease of doing business for ESG Rating Providers (ERPs)

Ira Alok Puranik

Only one-fifth of India Inc publishes sustainability reports in 2021, but ESG disclosures are improving gradually: CRISIL report

BI India Bureau

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