NATIONAL, MUMBAI, 10 JULY, 2020 (GPN): National Stock Exchange (NSE) released a report titled – ESG ANALYSIS ON 50 LISTED COMPANIES IN INDIA. The study is an independent and systematic analysis and evaluation of ESG policies, disclosure and performance of selected companies of India Inc.

This independent unbiased systematic assessment of ESG practices would help India Inc to have a broader picture of India Inc’s ESG footprint, benchmark it. It will further enable gap analysis and drive companies to achieve leadership status within their industry and achieve better performance. Additionally, it will give institutional investors a ready-made tool in benchmarking companies.

The study may also act as a catalyst and inspire companies, which are at present not doing integrated reporting and are lagging in their ESG practices compared to peers, to follow better ESG practices. End objective is to create an awareness so that appreciation for ESG becomes contagious and becomes organisational DNA.

Criteria for inclusion:

• Company must have disclosed either Integrated or Sustainability Report or related Report for FY 2018-19 on or before 15^th January, 2020: and

Company is either

• In top 10 company of the sector/ industry (maximum 10 companies in each sector);[1] OR
• Within list of top 100 companies by market capitalisation[2]; OR
• Within list of Nifty 100 companies[3]; &
• Not from IT/ Banks/ Finance sector

Speech by Mr Vikram Limaye, MD &  CEO, NSE-

Today we are releasing a report titled – ESG ANALYSIS ON 50 LISTED COMPANIES IN INDIA.  

Every day, we are faced with signs that point to the importance of recognising effects of climate change, importance of social factors, of governance and of sustainable investing.  

In recent years, we have seen a heightened level of awareness, concerns and advocacy by investors on environmental, social and governance issues. 

As a powerful catalyst for transformation, capital needs to have a purpose beyond financial returns. A purpose to contribute positively to the development of our communities – in economic, environmental and social terms. 

Our approach has to be to invest for the long term with sustainability at the core.  Companies that don’t adapt their business models will face increasing public, legal and regulatory pressure and are at risk of compromising stakeholder value. The value proposition of ESG disclosures needs to be better articulated to motivate companies and boards to make improvements in this area, and not to treat it as a check the box compliance.

The report to be released today has studied ESG practices across 50 listed companies in 12 different sectors. The report provides a brief summary of the ESG footprint of selected NSE listed companies. I believe that this assessment of ESG practices would help India Inc have a broader picture of India’s ESG footprint.  Additionally, it will provide investors with a tool to benchmark companies. The study is also intended to act as a catalyst and move companies to follow better ESG practices. 

SEBI as a regulator has always been at the forefront of ensuring good governance and has, way back in 2012, made it mandatory for companies meeting certain thresholds to publish an annual business responsibility report.

NSE as an organisation has been playing its part on the ESG front: 

• The carbon footprint of our Exchange Plaza building was around 22k tons of CO2 in 2019. With effective energy saving / green power measures, NSE has reduced it to 13K tons. 

• We generate Green Power through a 6.25 MW Wind Power Project at Satara in Maharashtra. The Wind Power Plant has generated around 1.29 crore electricity units. 

• NSE is a signatory to the Sustainable Stock Exchanges initiative of the UN and committed to the cause of promotion of corporate sustainability and responsible investing. 

• NSE, has identified and is working on three areas as issues of concern to be addressed in the developmental landscape in India. They are i) Primary Education, ii) Elder Care, iii) Sanitation & Safe Drinking Water. 

• In June 2020 NSE Indices limited launched a new index Nifty100 ESG Sector Leaders Index based on the ESG theme. The launch of the index highlights NSE’s continued work towards developing the ESG theme. It is expected to act as a benchmark for asset managers and be a reference index for passive funds in the form of Exchange Traded Funds (ETFs), index funds and structured products.

This ESG journey in India is at an early stage and a lot of effort and commitment is required. When you go through this report, you will see the effort that Mr. Gupta and his team have put in.

Events such as the one today will help focus attention on the issues at hand.

EXECUTIVE SUMMARY OF ESG REPORT:

For a long time, investors and analysts are using traditional financial metrics to value a Company as if it is only financial results that matters. The fact is that for investors in the end it is only the financial outcome that matters. However, financial numbers analysis is like a post mortem, it is like a result card and can be used for modelling future. However, beyond the numbers, there are several factors which are non-monetarily yet affect the performance of investments and can be said to be constituents which eventually determine financial outcome. No longer businesses can perform in isolation, it has to integrate itself with environment in which it operates, hence Environment (E) and Society (S) must be an important part of business operations. To integrate E and S factors with business Governance (G) plays an important role. As a result, investor focus and interest has shifted to the study risks on account of these non- financial parameters. Investors are realising that businesses cannot survive for long without caring for environment and society. 

ESG reporting and analysis in a structured manner is rather new in India, although it has existed in fragmented manner for long. While companies have been evaluated by investors for buy or sell recommendations, by credit rating agencies for credit rating purposes, ESG evaluation has been absent.

Realising ESG to be extremely important to evaluate business risks and continuity, NSE felt that it would be appropriate to carry out a comprehensive study of the disclosure and performance of India Inc. on these non-financial ESG parameters. SES was entrusted with the task to conduct this study of ESG practices and performance of India Inc. The study is based on a proprietary model developed by SES which was vetted by CAM from a legal perspective, and by NSE. Performance on Environmental, Social and Governance factors was evaluated using the Model. 

For this first ever study on ESG disclosures and performance, due to limited availability of Sustainability Reports, the sample was restricted to 50 companies. The Companies are those that have disclosed either their Sustainability Report or Integrated Report voluntarily and are within the top 10 companies within their sectors and within top 100 companies as per their Market Capitalisation. These 50 companies belong to 12 industries which SES felt had direct impact on the Environment and Stakeholders due to their business operations. Consciously IT and Banking sectors Companies were excluded from the present study due to their indirect impact on environment. 

The graph depicts the Average score (out of 100) of all sample companies across Policy, Environment, Social & Governance factors. 

Key Highlights from the Study: 

Companies have largely scored better on Policy disclosures followed by Governance factor compared to Environment & Social factors. This can be owing to the fact that Governance reforms have transformed into laws by various regulatory agencies within India in the last two decades. Similarly, many policies have been mandated to be prepared by regulatory authorities and hence Companies have scored higher on Policy disclosure parameters.

• POLICY DISCLOSURES

• All sample companies had a policy regarding Employees, Stakeholder, Environment and Corporate Social Responsibility. Very few companies had framed policy on Public Advocacy, may be owning to the fact that in India advocacy is seen in bad light hence if at all done, is done in a non-transparent manner. 

• ENVIRONMENT 

• Scoring: 

Within the sample companies, SES observed the lowest score of 44 on E factor, which was almost 50% of the top score of 88. The average sample score was 70. The wide gap between the top and bottom scoring companies was very wide. On one hand wide divergence is reflective of lack of mandatory provisions, on the other hand it reflects a sense of concern in few companies to E factor as reflected in high E score on voluntary basis.

• Wide divergence in scores was also observed with sample companies within the same industry, indicating that although companies are operating within same industry yet there is asymmetry in appreciation and concern for environmentally sustainable practices and disclosure on the same
• All the companies in the sample have disclosed that they have framed an environment policy. 
• 42 Companies from the sample stated that they have Environment Management Systems and 22 companies stated that they have Energy Management System in place.

• Air Emission: 45 companies disclosed data on Greenhouse gases (“GHG”) / Carbon emissions. 35 companies disclosed data on GHG emission intensity or specific GHG emissions. Overall only 6 companies reported decrease in GHG / Carbon emissions intensity for last 3 years
• Energy Consumption: More than 80% of Automobile (5/6) & metal (7/8) industry companies provided 3-year data on energy intensity. Least disclosures relating to energy intensity was observed in Consumer goods and other industries. 

• Almost all the companies in the sample disclosed steps or initiative’s taken towards progression to increasing renewable energy usage

• Water consumption: 9 companies within the sample had achieved a ‘Water Positive’ status.

• 44 companies from the sample had disclosed data on water consumption or usage.
• 27 companies disclosed data on water intensity or specific water consumption (per unit production or w.r.t. the revenue)
• 48 companies discussed about rain water harvesting. However, 37 of such companies provided details on initiatives taken by them regarding rain water harvesting

• Waste Generation: 49 provided disclosures on waste. However, only 33 companies have provided information with categories or type of waste generated.
• Effluents: It was observed that 23 companies provided generic information regarding effluents and 4 companies did not make any discussion in this regard.  

• SOCIAL 

• Average score of across Social category, in the sample companies was 63, with a high of 83 and low of 49.
• Women Empowerment: out of 12 industry group 3 Industries have an average 10% or more permanent women employees. 10 companies from the sample have more than 10% permanent women employees. Highest number of women employees were observed in a textile industry – 78.22%.
• Fatalities: Highest number of fatalities were observed in Metals, Construction 
• Child Labour: Though none of the sample companies have reported any child labour complaints, however, the data relates to the workforce of companies only, and no data is provided for child labourers employed by associated suppliers, contractors or other stakeholders which work in association with the Company.
• Sexual Harassment: During the FY 2018-19, total 185 sexual harassment complaints were reported by 30 sample companies. No complaints were reported by 20 companies. 
• Cyber Security: 37 companies disclosed in the annual report for FY 2018-19, that the Risk Management Committee (RMC) monitors and reviews cyber security risk. Only 6 companies provided data on number of incidence or complaints regarding data security or privacy breaches. This reflects that either the companies are not centrally tracking all data security/ privacy breach concerns or hesitant to publish negative information.

• GOVERNANCE

• Independent Directors: Within the sample companies, there were 276 Independent Directors in total and 70 of them were associated with the Company or group companies for more than 10 Years.

• ED Chairperson: In the sample companies, Board Chairperson of 24 companies were Executive Directors (ED).

• Women Director: All sample companies had at least 1 Women Director on its Board. 6 companies within the sample had more than 2 Women Directors.

• Age of Directors: Within the sample 18 companies have a Non-Executive Director on the Board whose age if above 75 years and 3 companies have an Executive Director above 70 years of age.

• Board attendance: Only in 15 companies all directors attended 75% or more Board meetings.

• Committees: All the companies complied with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 provisions on composition of committees. Overall in sample, SRC & CSRC had less than 50% IDs, as requirement is to only have at least 1 (33%) ID. 

From attendance data and disclosure of Risk Policy, it appears that the importance of Risk Management Committee (RMC) is yet to sink in. Among all committees RMC had less than 75% attendance in 50% companies, lowest amongst all committees.

• Remuneration: 85% of the total board remuneration was paid to EDs and balance 15% paid to NED-NIDs & IDs. Identical remuneration was paid in 2 companies to EDs (including performance pay) for at least 3 years. Reflecting exactly same appraisal ratings for different EDs.
• Statutory Auditors: No case was found in the sample companies wherein Statutory Auditors were removed or resigned before the expiry of the term.
• Pledge: 8 companies have shares encumbered or pledged by the promoters of the Company. This pledge shareholding is valued at Rs. 58,557 crores as at 31st December, 2019.
• Shareholders Resolution: Overall for 82 resolution, public institutional shareholders voted against for more than 10% of their total votes polled, whereas public others voted more than 10% against only for 16 resolution. On consolidated basis, the count was for 36 resolution. However, high against votes from shareholders resulted in 2 resolutions of a company being defeated i.e. not approved by the shareholders of the Company.
• Ethics, Bribery & Corruption: Only 20 companies have disclosed specific information regarding its training or programmes to directors / employees for anti-corruption policies / procedures
• Whistle Blower Complaints: Only 16 companies disclosed regarding whistle blower complaints. 10 companies did not adequately disclose whether it has mechanism for whistle blower, a direct access to the Chairperson of the Audit Committee. ENDS