Friday, June 24, 2022

PSUs lag behind private companies in ESG scores: Acuite Ratings

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  • ESG scores are a key criterion for fund allocation by global investors
  • 40 percent of private sector companies are rated ESG risk A, while only 14 percent of public sector units (PSUs) are rated A

New Delhi: India’s public sector undertakings (PSUs) continue to lag behind their private peers in environmental, social and governance (ESG) scores, an analysis by Acuite Ratings has showed. “ESG data from ESG Risk Assessments and Insights Limited, by Acuite Ratings, showed that of Nifty 50 companies, 40 percent of private sector companies are rated ESG risk A. In contrast, only 14 percent of public sector units (PSUs) are rated A,” said the report. Risk A indicates an ESG leader with a largely positive track record of managing material risks.

ESG scores are a key criterion for fund allocation by global investors. According to Acuite Ratings’ analysis, 48 percent of private sector companies and 86 percent of PSUs 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.

Business ethics: PSUs and private sector companies

In the category of business ethics, private sector companies score an average 49 percent, whereas public sector companies score an average 48 percent. Business ethics refer to a company’s performance on parameters like fair competition, anti-corruption, whistle-blower protection and compliance related to insider trading. 

On the issue of greenhouse gas (GHG) emissions, private sector companies scored an average of 46 percent, while PSUs scored an average 38 percent.

Experts: PSUs taking steps towards improving ESG ratings

However, even as the Acuite Ratings analysis showed PSUs as lagging behind their private peers on ESG scores, experts believe that an improvement on that parameter is likely as PSUs are taking steps towards transitioning their business portfolios towards long-term sustainability. They said that even though private sector companies have been early adopters of ESG disclosures resulting in better ratings, PSUs are also fairly advanced in making such disclosures. 

“Our work with PSUs indicates that they 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. This is more with a view towards capturing the opportunities from energy transition but can help tell the ESG narrative more effectively. Another aspect frequently overlooked is the huge amount of work done by PSUs on the social dimension of ESG. They invest a significant amount in developing services and infrastructure for communities in the catchment areas of their operations and often do not get adequate credit for these contributions,” said Suvojoy Sengupta, partner, McKinsey and Co.

According to Sengupta, several large PSUs are active in oil and gas, mining, power generation and steel, which are also the highest carbon-intensive sectors. They have the opportunity to accelerate the adoption and commercialisation of newer technologies and pursue newer product opportunities, Sengupta said, adding that these sectors are vital for the growth of the Indian economy, and so from a decarbonisation and sustainability perspective, it is important to take the right steps towards the net-zero 2070 journey.

Shailesh Tyagi, partner, climate change and sustainability services, EY said, “If one sees the current strategy of PSUs that are dealing with fossil fuels, one can see the investments in operational eco-efficiency, the research and development and pilot project initiation across CCUS (carbon capture, usage and storage) and these companies are shifting into renewables. ONGC’s 2040 strategy clearly aims to reach 10 GW of renewable energy capacity by 2040 through acquisitions. With the shift towards cleaner fuel, Indian PSUs have given public statements and are developing strategic road maps for their decarbonisation levers which are going to enhance their ratings further.”

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