Indian companies finally jumped on the ESG bandwagon

India ranks 120th among 165 countries in its progress towards achieving all the 17 SDGs (Sustainable Development Goals), lower than its SAARC counterparts Sri Lanka, Nepal and Bangladesh.

Over a dozen companies, including Reliance Industries Ltd (RIL), Vedanta Ltd, JSW Energy and HDFC Bank, have jumped on the bandwagon to go carbon neutral over the next few decades. Some of them are rearranging their businesses to meet the net-zero emissions deadline. They are tapping into new pools of capital and raising valuations to attract investors to these restructured entities, while increasing shareholder value.

ESG is a unified term used in capital markets to evaluate corporate behavior. Investors are increasingly applying these non-financial factors to their analysis to identify material risks and growth opportunities.

“As hopes of limiting global warming to 1.5 degrees are dwindling rapidly, companies desperately need to reorganize their business processes to prevent the worst excesses of climate change. Furthermore, companies value that as well. We are realizing what ESG creates for businesses as consumers become more aware of their carbon footprint and the potential positive impact of ESG on business performance,” said Nyarika Holkar, Executive Director, Godrej & Boyce.

Holkar said companies need to make a strong commitment towards achieving the net-zero target and integrating the target into business goals. This will require a significant amount of change within organizations and can be achieved by setting science-based goals to reduce carbon emissions and improve energy efficiency.

It should come as no surprise, then, that Vedanta is restructuring its operations, which could include the subsequent listing of the aluminum, iron and steel, and oil and gas businesses as separate entities.

Meanwhile, RIL is shifting its gasification assets to a wholly owned entity, which will help in setting up a hydrogen ecosystem to produce hydrogen. and JSW Energy is moving its green energy business into a new wholly owned entity, JSW Neo Energy Ltd, while keeping the thermal business as part of the core company. The green business is expected to contribute more than 62% of JSW’s earnings before interest, taxes, depreciation and amortization.

“ESG action operates primarily as a response to reporting and disclosure norms; with a mindset of value preservation or loss of value. A significant challenge remains that mindset. Being aware and recognizing how to adapt to the new normal has significant value creation potential. The journey then becomes simpler and easier to evaluate baselines, understand technology and financing availability, set targets, generate resources and commit,” said Sambitosh Mohapatra, Leader – ESG/Energy Utilities and Resources, PwC said.

However, government companies lag behind their private counterparts in ESG scores.

ESG data from ESG Risk Assessment & Insights Ltd by Acuite Ratings showed that out of Nifty 50 companies, 40% of private sector companies are rated ESG Risk A. In contrast, only 14% of the public sector units have been given A status. Risk A indicates an ESG leader with a largely positive track record of managing material risks.

The analysis showed that 48% of private sector companies and 86% of public sector companies of Nifty are rated ESG risk BBB, indicating that the company has a good track record of risk management, but no strong framework. There is no evidence.