Responsible Business Rankings
India’s Top Companies for
Sustainability and CSR 2021
Rise of ESG and Net Zero
The past two years has seen a shift in society’s expectations from businesses. The pandemic has put busines leaders in a spotlight. They can longer sit on the sidelines and think of planetary and human issues as “someone else’s problem.”
Net Zero refers to achieving an overall balance between emissions produced and emissions taken out of the atmosphere.
Net emissions = Total carbon released less total carbon taken out of the atmosphere
If carbon released equals carbon taken out of the atmosphere, we are net zero. Else we are net positive as is the case today. As a society, we would like to be net negative but that is a long way off.
Achieving net zero requires policy action, use of technology and behavioural change. For structural and economic change to come about policy change is essential. This needs to be coupled with political will. Technology is becoming available that is cost-competitive with high carbon alternatives. This is being aided by markets becoming aware of these opportunities and risks of high carbon economy. Without behavioural change shift to a low carbon economy is difficult. Education and nudging people to new behaviours become important.
Net Zero is an important input into ESG actions. While net zero helps companies achieve environmental goals, they are only part of the jigsaw puzzle. Environmental actions are not just about emissions, they are also about waste, water and energy.
Several large banks and fund houses are realising that their definition of what is financially relevant needs to involve environmental, social and governance (ESG) factors. These issues are now becoming critical in investment decision-making. Investors are incorporating these to reduce risk and seize opportunities by fine-tuning equity exposures, searching for excess returns, remaking bond portfolios, and tapping the green bond market. ESG represents about one-quarter of all professionally managed assets around the world.
Environment: Focuses on a company’s environmental disclosure, environmental impact, and, any efforts to reduce pollution or carbon emissions
Social: Refers to the workplace mentality (diversity, management, human rights) as well as any relationship surrounding the community (philanthropy or corporate citizenship)
The practice of ESG investing began in the 1960s as socially responsible investing (SRI), with investors initially excluding stocks or entire industries from their portfolios based on their involvement in business activities, such as tobacco production or their implicit support of the South African apartheid regime.
While ethical considerations and alignment with values remain common motivations of many of today’s ESG investors, the field is rapidly growing and evolving. For asset owners who seek to invest in a way that is aware of and responsive to climate change, solutions in the marketplace have traditionally focused on mitigation: reducing the effects of climate change on a portfolio by, for example, reducing exposure to greenhouse gases and increasing exposure to ‘green’ energy companies. As extreme weather events become more frequent and the economic impacts of climate change more widely understood and accepted, investors will require companies to disclose how they are adapting their business strategies to accommodate the impacts of climate change.
Many investors now look to incorporate ESG factors into the investment process alongside traditional financial analysis. As part of this process, investment firms gather ESG data on companies and use this to make decisions on valuation and risk of a stock. With investors looking at ESG as a value-based dimension of their portfolio, they increasingly want to understand ESG performance the same way they would any other traditional financial measure. This is leading to greater interest in robust ESG reporting along dimensions such as carbon intensity, controversy exposure, and overall ESG profile.
Once considered a niche market for institutional clients with specialised investment needs, ESG investing has gone mainstream. It now spans multiple asset classes and is used by a diverse group of investors. We have tracked ESG over the seven years of our study and it indicates that companies are putting significant efforts to improve their performance.
ESG Performance Over Years
Our ESG analysis looks at various factors to capture ESG components:
Focuses on a company’s environmental disclosure, environmental impact, and, any efforts to reduce pollution or carbon emissions
|Process waste, including waste water discharge
|Opportunities in Renewable energy
|Opportunities in Green buildings/factories
|Opportunities in Sustainable product/service
|Opportunities in Employee awareness
|Opportunities in Green logistics
Refers to the workplace mentality (diversity, management, human rights) as well as any relationship surrounding the community (philanthropy or corporate citizenship)
|Health & Safety
|Opportunities in community welfare
|Opportunities in Employee management
|Health & Safety
|Opportunities in Supply chain management
|Human Capital development
|Supply chain labour standards
Accounts for compensation, shareholder rights, and the relationship between shareholders and management
|Customer data privacy
|Responsible business reporting framework
|Alignment with principles/frameworks like SDGs
|Responsible business policy