Public sector companies far behind private firms on ESG scores: Acuite Ratings Business Today
Impact Investing Forum 2023
London. May 04-05, 2023.
India’s state-owned companies lag behind private companies in environmental, social and governance (ESG) scores, a key criterion for fund allocation by global investors. Out of Nifty 50 companies, 40 per cent of private sector companies are rated ESG ‘risk A’, compared to 14 per cent of public sector units (PSUs), according to ESG data from Acuite Ratings. Risk A indicates an ESG leader with a largely positive track record of managing material risks.
About 48 per cent of private sector companies and 86 per cent of public sector companies of Nifty are rated ESG risk BBB. An ESG rating of BBB indicates that the company has a good track record of risk management but no evidence of a robust framework.
Private sector companies score an average of 49 per cent on business ethics, whereas public sector companies score an average 48 per cent. Business ethics refer to a company’s performance related to anti-corruption, fair competition, whistle-blower protection and compliance.
The report said that PSU’s are well aware of the relevance and importance of ESG and sustainability. As of now, this is not impacting their cost of borrowing or capital availability, especially for the well-performing and profitable ones, but several of them have taken steps towards transitioning their business portfolios. For example, Indian Oil is building India’s first green hydrogen plant at the Mathura refinery, and NTPC announcing plans for 60 gigawatt (GW) of renewables in the next decade.
Several PSUs are transitioning their business portfolios towards long-term sustainability. While the private sector may have been early adopters of ESG disclosures resulting in better ratings, the report adds that PSUs are also fairly advanced in their disclosures.
The study found that several large PSUs are active in oil and gas, mining, power generation and steel, also the highest carbon-intensive sectors.
The report found that private sector companies score an average of 46 per cent on greenhouse gas (GHG) emissions. Similarly, the analysis showed that public sector companies score an average of 38 per cent in GHG emissions.
“We believe many PSUs, irrespective of their size, risk irrelevance, given their presence in challenged industries with a bleak future (fossil fuels) and challenging industries are seeing rapid transformation (financials). We doubt the companies are sufficiently geared to meet the challenges; continued government ownership may handicap them further. Anyway, we do not see much merit in sectors such as energy, financials and telecommunications being classified as strategic,” the company had said in a statement.
The government had stated its intent to have a zero presence in non-strategic sectors and a minimum presence in identified strategic sectors. The four identified strategic sectors are atomic energy, space, and defence; transport and telecommunications; power, petroleum, coal, and other minerals; and banking, insurance, and financial services.