Average disclosures by newly listed companies on environmental, social and governance (ESG) parameters rose 40% after their initial public offerings (IPOs) and subsequent listing, despite it not being mandatory at the moment.
Further, there has been an average increase of 50% in ESG scores of most companies from 2018 to the time when they got listed, reflecting the importance of transparency in ESG journey. Many companies have started disclosing their ESG practices through sustainability reports, ESG reports, Sebi guidelines and Sustainable Development Goals among others, according to a study by ESG Risk Assessments and Insights (ESGRisk.ai).
In the environment category, the newly listed companies contributed the highest disclosures in biodiversity impact and energy efficiency, water efficiency, and environmental management and greenhouse gas emissions (see chart). Under the social category, community support and development, data privacy and security, employee development, and product quality, ranked among the highest.
In the governance category, the companies contributed the most in committee functioning, audit committee functioning and board independence, financial audit and control, and board structure and functioning, the report said.
The report analysed 48 companies that raised funds through IPOs and got listed in FY21. These were also among the top 1,000 listed companies (by market capitalisation). ESGRisk.ai is a wholly owned subsidiary of Acuité Ratings and Research and part of the Acuité Group.
While it is not mandatory to report disclosures under listing regulations at present, it is slated to become compulsory from FY23 for the top 1,000 listed firms.
According to the study, the transparency score of the textile industry rose 9% in FY21 compared with the year-ago period, and topped the charts. This was followed by the IT services industry and paper and paper products industry (7%), banking services (6%) and pharmaceuticals (4%). However, transparency scores of sectors such as civil engineering (-21%), automobile (-7%), beverages (-5%) and telecommunications (-4%) fell.
“It is seen that a significant portion of top ESG scoring companies is coming from the polluting industry. This makes it evidently clear that these companies have realised how responsible resource management, being fair to all stakeholders and environmental stewardship are the only ways to achieve sustainable long-term success,” Sankar Chakraborti, chairman, ESGRisk.ai, and Group CEO, Acuité, said.
ESGRisk.ai, which also assessed controversies occurring in NSE 1000 companies in FY21 across ESG parameters, found that the greatest number of failures happen in the business ethics category, followed by employee safety and environmental management.
Controversies, which are a critical component in the ESG risk management framework, also occur in areas such as environmental management, product responsibility, data privacy and security among others. Interestingly, even when there are high-polluting industries such as petroleum, metals and mining, tobacco among others, the banking and financial services industry is riddled with controversies, wherein the highest number of failures are observed in business ethics (34%), as per the study.