ESG disclosures to be part of Ind-Ra's rating action commentaries from Jan

India Ratings on Thursday said it will make ESG disclosures an integral part of its rating commentary from next month to help investors understand how their money is being put to use when it comes to environmental, social and governance (ESG) factors and how those will impact credit rating decisions.

The ESG disclosures will be part of Ind-Ra's rating action commentaries for all entities having listed securities whose ratings will be assigned or reviewed effective January 1, 2022, it said.

Ind-Ra becomes the second domestic rating agency to do so after Acuit Ratings in September announced a similar move.

ESG factors are increasingly becoming relevant in the evaluation of the credit quality of borrowers. This UN initiative helps incorporate ESG factors in a more meaningful way to make tomorrow's rating methodologies more accurate.

Ind-Ra said the ESG disclosures will transparently and consistently communicate both the relevance and materiality of ESG elements to the rating decision.

The ESG relevance can be both positive and negative and will be sector based and entity specific and the disclosures will be drawn from the Sustainability Accounting Standards Board's global sustainability framework which has 14 factors (five for the environmental, five for social and four for governance).

These factors are fundamental in the ESG journey of any entity and will help the rating agency to make the disclosures specific wherever these have a relevance to the rating.

ESG factors broadly have three categories -- factors minimally relevant to rating (factors relevant to sector and entity and are being managing effectively or have a low credit impact); factors relevant to rating (the sector, entity and indicate an emerging risk or a contributing factor to the credit decision in combination with other rating drivers).

The third category is of factors highly relevant to rating (to sector and to the issuer which by themselves are the key rating drivers).