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ESG Excellence in India: A Deep Dive into the Top Performing Companies

Created on 26 Oct 2023

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ESG Excellence in India

When you look at a successful company, the first thought that usually comes to mind is, "Wow! The founder must have had a great idea." Well, an idea sure is the base for establishing a new business, but it's not enough to take it to the top and then maintain that leadership position over the years. Right decisions at the right time, increasing profits, positive returns, and persistence assist in completing the journey from a new business to a successful one.

But here's the trickiest part! Even having a booming business with rapidly rising profits is not considered enough today. Humans are brainstorming ways for environmental protection and becoming increasingly aware of their rights. This phenomenon has also influenced the business world, leading to the inclusion of three critical factors: Environmental, Social, and Governance, in short, ESG.

ESG is a non-financial aspect considered by experienced investors while analysing a company. It helps identify material risks and growth opportunities and is thus being heavily relied on along with other financial particulars.

Don't worry! Checking ESG scores while analysing a company won't make your work difficult. I will simplify the concept to help you note which areas you have to be on the lookout for and catch the danger signs. ⚠️

Let's begin, shall we?

A Short Peek at ESG

Investors with realistic, futuristic, or a mix of both ideals are on the lookout for companies that focus on ESG, along with the usual financial metrics. ESG investing is thus booming in India, as companies from varying sectors are contributing a significant chunk of their budget to maintain a good score.

While several agencies keep track of the ESG scores, CRISIL, formerly Credit Rating Information Services of India Limited, is considered one of the most trusted sources. Based on predetermined environmental, social, and corporate governance parameters, CRISIL analyses 575+ companies in India. The following table showcases the companies with the highest ESG scores as per CRISIL’s 2022 Report. ⤵️

Company’s Name

Environment Score

Social Score

Governance Score

ESG Score

Infosys Limited

81

62

80

76

MindTree Limited

83

69

74

76

Kotak Mahindra Bank Limited

75

61

79

73

Tata Consultancy Services Limited

70

66

78

72

HDFC Bank Limited

65

67

81

72

Housing Development Finance Corporation Limited

70

61

80

72

L&T Finance Holdings Limited

81

62

71

72

Tech Mahindra Limited  

75

60

78

72

HCL Technologies Limited

66

63

79

71

Mahindra and Mahindra Financial Services Limited

74

64

71

71

Marico Limited

70

61

78

71

Axis Bank Limited

68

63

79

71

Kansai Nerolac Paints Limited

68

70

73

71

In this article, we will overview the factors that contributed towards these companies scoring the "Leadership" remark on CRISIL's Report. We will also discuss the essential parameters utilised for ESG scoring, some of which are:

  • Global and domestic developments in ESG
  • Climate risks
  • De-carbonisation of hard-to-abate sectors
  • Transitioning from Banking Responsibility Report (BRR) to Business Responsibility and Sustainability Reporting (BRSR) for Indian companies
  • Insights and trends on ESG, etc.

With this, not only will you be introduced to the emerging necessity of a positive ESG remark, but you will also realise the possibilities ESG investing contains. In short, you will learn about a new investment sector with growth potential for the future. Before analysing the top companies' rocking environment, social, and governance criteria, let me brief you on

How is ESG Scoring Done?

The ESG scoring depends upon the several pre-set rating metrics based on which an agency scores a company. When it comes to CRISIL, the structure depicted in the diagram below is followed: 👇

Company assessment framework
 
The Environment section has a 35% contribution, the Social component has 25%, and Governance, with 40%, makes up the overall score. Individual scoring for E, S, and G is an all-inclusive remark of the company and its sector.

By seeing this division, you may wonder as to why the scoring is uneven for the three factors. To understand the dissection better, first, we need to know what each component entails and its importance in the industry.

  • Environment ‘E’: The score E is a comprehension of the environmental parameters followed by the company and the initiatives planned to make it eco-friendly. It describes how the company is performing as compared to other companies on the existing and upcoming environmental issues.
  • Social ‘S’: The score S describes the company’s relationship with its workforce, both employees and labourers. Factors like attrition rate, safety parameters, training skills, etc., are taken into consideration.
  • Governance ‘G’: Opposite to ‘S’, ‘G’ includes the management’s track record description. The score ‘G’ is provided after considering a sub-division of factors like the board’s composition, independence, and functioning.

Since G provides insight into the performance of the management and the board, it constitutes a bigger portion of the pie. 🥧 One can even say that the scores of E and S highly impact the remarks for G.

You can review the ⤵️ infographic for ESG negative score parameters. Consider these pointers as the red flags 🚩of a company and stray away at first sight.

Key negative parameters assessed for E.S and G
Source: CRISIL Research
There are several ESG funds in India which invest in companies with positive environmental, social, and governance criteria? Check out the top five ESG funds here.

Highest ESG Scored Companies in Different Sectors

Among over 500 companies, only 13 in CRISIL’s Report have the highest ESG scores with the shining “Leadership” remark. The development of ESG-sensitive companies might be a bit slow, but we have begun the journey to achieving a healthy and eco-friendly corporate world.

After all, “The First Step is Half The Journey”. 🚶

Let’s check out the top companies in the list and which attributes make them the leader of the ESG investing sector.

IT Sector: Infosys Ltd.

With a 76 ESG score, the top IT firm in India, Infosys Ltd., has the highest ESG score. Their ESG score consists of an 80+ mark for both environmental and governance, with 60+ in social. If you look at their latest ESG report, these attributes contributed to the top position:

  • Environmental: Infosys Ltd. has been carbon neutral for over 4 years with 60 megawatts of total installed solar capacity. It has maintained a CDP Climate Leadership for the past 7 years.
  • Social: 66% of the company’s spending is spent on local suppliers in India. It also runs company offset programs, which positively influence over 2 lakh rural families.
  • Governance: The company is recognised to be the world’s most ethical firm by the ethical research firm “Ethisphere” for the third time in a row.

 Banking Sector: Kotak Mahindra Bank Ltd.   

In the banking industry, Kotak Mahindra Bank tops the chart with an ESG score of 73. With a 79 in Governance, Kotak Mahindra is showcasing a positively growing workforce and regularly increasing ESG capital year after year.

  • Environmental: Kotak Mahindra Bank Ltd. is especially focused on energy, water, and biodiversity conservation. It conducted over 50 energy audits to improve the efficiency of MSMEs.  
  • Social: Both the permanent and contractual workforce at Kotak have seen a constant rise for the past 3 years, establishing a satisfied employee base.
  • Governance: The company is dedicated to providing a satisfied and safe user experience to customers. Constantly upgrading the Customer Grievance Redressal Mechanism is a good sign of that.

Automotive Sector: Mahindra & Mahindra Ltd.

With a program named “Planet Positive”, Mahindra & Mahindra Financial Services Ltd. boasts a 71 score in the ESG sector.

  • Environmental: Commonly known as M&M, the company is heavily investing in the Electric Vehicles sector to keep pace with the changing trends and help create eco-friendly roads.  
  • Social: The firm has completed 25 years running its girl child education project, “Nanhi Kali”, and 15 years on the biodiversity protection initiative “Project Hariyali”.  
  • Governance: With plans to be a zero carbon emission company, M&M has portrayed wonderful developments. Products are being designed to match the environment-friendly nature and contribute towards healthy surroundings.  

The Bottom Line

You can make investment decisions based on ESG scores, a company’s growth plans, along with its financials. Environmental, Social, and Governance is a crucial sector as governments and organisations are trying their best to “save the planet”. Any company breaking the regulations has to deal with several repercussions, which may hurt its financials and reputation.

So, we suggest checking the ESG scores of the company along with the capital figures to “Invest in the Future.”     

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.

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A book-lover who adores everything fictional, Preeti has undertaken the life mission of tasting every flavour available in the pantry. A science student with a Master's in Mass Communication, she now wishes to conquer the Finance world as a writer. With the power invested by the randomly chosen music, she is here to make Finance fun for you.

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