{"id":186177,"date":"2022-05-24T20:36:06","date_gmt":"2022-05-24T15:06:06","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=186177"},"modified":"2022-05-24T20:36:06","modified_gmt":"2022-05-24T15:06:06","slug":"the-esg-rating-conundrum","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/the-esg-rating-conundrum\/","title":{"rendered":"The ESG rating conundrum"},"content":{"rendered":"\n

News:<\/strong> In recent years, the environmental, social and governance (ESG)<\/strong> investments have emerged as a subject of great interest and significance across the globe. In this context, the SEBI had brought out a consultation paper on the need to regulate ESG rating providers.<\/p>\n

Increasingly, corporates are adopting higher\u00a0ESG norms, and investors are preferring such investments.<\/p>\n

Importance of ESG <\/strong><\/h5>\n

The ESG investments lead to public good as well as make business sense. They are beneficial for both \u2014the shareholders and all other stakeholders.<\/p>\n

Rating by ERPs
\n<\/strong><\/h5>\n

The ESG rating providers (ERPs) <\/strong>offer rating products in two categories: (1) risk ratings:<\/strong> an assessment of a company\u2019s resilience to ESG related risks, and (2) \u201cimpact\u201d ratings:<\/strong> an assessment of the impact of a company\u2019s operations on the environment and society.<\/p>\n

What are the challenges in the development of universally acceptable ESG standards?<\/strong><\/p>\n

Globally, there are no universally recognised<\/strong> ESG reporting standards <\/strong>and frameworks<\/strong>. The investors<\/strong> and corporates<\/strong> have been using different standards<\/strong> and frameworks<\/strong>. For example, GRI, TCFD, SASB, among others. This may lead to greenwashing<\/strong> and misselling<\/strong>, and the potential risks<\/strong> to investor protection, transparency and capital allocation in markets, among others.<\/p>\n

There is no consistency in disclosures and transparency<\/strong> of the methodology and rating process.<\/p>\n

Assessing impact rating is more complex and arduous compared to risk rating.<\/p>\n

Investors are more concerned about risk rating<\/strong>. It means, ESG impact ratings<\/strong> are not the mainstream ESG rating product currently being offered by most providers.<\/p>\n

There are concerns over desirability<\/strong> or workability<\/strong> of the universal ESG standard and frameworks. There are different levels<\/strong> of development across different countries in the world. The advanced economies and the emerging economies have made different commitments based on the principle of \u201cCommon but Differentiated Responsibilities and Respective Capabilities\u201d.<\/strong> An ESG framework negates the efforts made for equity and climate justice.<\/p>\n

ESG investing is still relatively in the nascent stage in India. Many of them do not understand the nuances of ESG investing. They rely on in-house research<\/strong> due to absence of consistent and comparable ESG reporting standards and frameworks.<\/p>\n

Way Forward<\/strong><\/h5>\n

Global level<\/strong><\/p>\n

A number of international bodies are working on the idea to develop the ESG framework.<\/p>\n

–<\/strong> For example, The International Financial Reporting Standards (IFRS) Foundation <\/strong>had announced the setting up of the International Sustainability Standards Board (ISSB)<\/strong> at Glasgow Summit<\/strong> in 2021. This is an attempt to develop universally acceptable reporting standards and frameworks.<\/p>\n

India<\/strong><\/p>\n

India has already developed and put in place our own business responsibility and sustainability reporting standards (BRSR)<\/strong>. This takes into account the viewpoint of stakeholders, domestic considerations and international best practices.<\/p>\n

–<\/strong> For example, the BRSR reporting framework <\/strong>is inter-operable <\/strong>with international frameworks like GRI, TCFD and SASB.<\/p>\n

Sebi regulations mandates top 1,000 listed companies to compulsory report in accordance with the BRSR standards from the year 2022-23 onwards. Other listed<\/strong> or even unlisted companies<\/strong> could voluntarily<\/strong> adopt these standards.<\/p>\n

The domestic ESG rating providers<\/strong> industry is still at a stage of infancy in India. The demand is mostly met by the foreign ESG rating providers which are unregulated and following varying standards at present. Therefore, there is an urgent need that India put in place a regulatory framewo<\/strong>rk to accredit ERPs<\/strong>.<\/p>\n

Source<\/strong>: The post is based on an article \u201cThe ESG rating conundrum<\/strong>\u201d published in the Business Standard<\/strong> on 23rd<\/sup> May 2022<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

News: In recent years, the environmental, social and governance (ESG) investments have emerged as a subject of great interest and significance across the globe. In this context, the SEBI had brought out a consultation paper on the need to regulate ESG rating providers. Increasingly, corporates are adopting higher\u00a0ESG norms, and investors are preferring such investments.… Continue reading The ESG rating conundrum<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216],"class_list":["post-186177","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704835793},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/186177","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=186177"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/186177\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=186177"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=186177"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=186177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}