Implementing Sebi's ESG framework tough for Indian companies: Rating agency

The government's clean energy push has prompted the regulator to roll out a series of rules for the country's top 1,000 listed companies

Indian companies will find it difficult to implement environmental, social and governance ratings proposed recently by the capital market regulator and authorities may need to offer incentives to accelerate adoption, a senior rating agency official said.

“It is easy for Scandinavian or Norwegian companies to say they will not use coal given their demographics, but it’s difficult to practice such a position in India, if not impossible,” Sankar Chakraborti, group CEO at Acuite Ratings and Research and chairman at ESG rating provider ESGRisk.ai said in an interview. 

Prime Minister Narendra Modi’s resolve to boost green power in India’s energy mix has raised the demand for ESG ratings in the fossil-dominated economy. The government’s move has pushed the Securities and Exchange Board of India to roll out a series of rules in the past year and create a standardized ESG framework for the country’s top 1000 listed companies.

“India has to grow and create employment and therefore impact on the environment is a given. That is why they have to ensure quick adoption of ESG through an incentive-based approach,” Chakraborti said, adding that otherwise, it would be tough for companies to accept ratings.

The proposed changes come amid rising concerns of climate change with many nations including India--which is among the world’s top emitter of greenhouse gases -- committing to mitigate this challenge. 

India has pledged a more than 45% reduction in the ‘carbon intensity’ of its economy by 2030 -- a target achievable if the country switches to more power generated by renewable sources. And while Indian companies have shown an eagerness to embrace clean energy, they face difficulties trying to purchase renewable energy with the country’s ailing power distributors posing a challenge.

Sahil Arora, a partner at legal firm Saraf and Partners in Mumbai hopes companies overcome the initial hesitation as the regulator’s proposed ESG rules including accrediting rating providers will make the framework more trustworthy and help Indian companies attract more green capital.

“Entities seeking investments will be able to get a much larger investor pool as they get ratings from these regulated entities,” Arora said. “SEBI has kept the framework very open and it provides relevant amount of flexibility.”

(updates with emission target in sixth paragraph.)