ESG SECTOR- AN ANALYSIS OF TOP SUSTAINABLE
COMPANIES IN INDIA
AUTHOR :GANEEV CHADHA
https://taxguru.in/sebi/esg-sector-analysis-top-sustainable-companies-india.html
This article provides an introduction to the Environmental, Social and Governance (ESG) sector, explaining in
detail why it appears to be one of the most promising picks for the global economy. The article provides a basis
to understand how a company’s social sustainability can be linked with its growth potential and future
opportunities. This piece provides the perfect platform for beginners looking to learn about the ESG sector,
discussing as well the financials of the top 10 ranked ESG companies in India to provide a complete perspective.
ESG stands for Environmental, Social and Governance and refers to a set of standards for a company’s social
responsibility. Investors that are socially conscious are increasingly using this metric as a part of their criteria in
the selection of their investment portfolios.1 The Environmental, Social and Governance score helps ascertain
how a company performs as a “steward of nature”- its corporate climate policies, energy use, wastage,
transparency in its disclosures, how it moderates its relationships with its stakeholders and how ethical and
responsible it is in terms of its management practices and leadership.2
The Environmental component refers to a company’s contribution in the preservation of the natural world and
maintaining an environmentally responsible practice. This component includes company policies on climate
change, carbon emissions, air and water pollution, deforestation, and also factors such as resource optimization,
waste minimization and efficient energy use. The Social component takes into account the company’s policies
on people and relationships with its customers, employees and other stakeholders. This includes factors such as
data protection and privacy, community relations and opportunities in community welfare, CSR contributions,
labour standards, employee engagement, customer satisfaction and gender and diversity. Lastly, the Governance
component takes into account the standards of running and functioning of a company. This component includes
factors such as a company’s leadership, board composition, bribery and corruption, political contribution,
transparency in its management and accounting practices, audits, and shareholders rights.3
While the ESG criteria might play a role in the portfolio of a socially conscious investor, this criteria is forming
the basis for analysing companies in terms of long term sustainability and in turn profitability, for all investors.
There are several factors that suggest that a higher ESG score will lead to better financial performance for a
company in the long run. A higher ESG performance is likely to increase top line growth, for example with a
company in the consumer goods sector. A company with a more sustainable overall approach in terms of its
business, governance and other endeavours, is more likely to have higher customer acquisition and loyalty,
considering the current consumer climate. Another quite direct impact of ESG performance is cost- a company
that is more efficient in terms of its resource use, water use, energy use etc., is more likely to have lower costs of
production and in turn higher margins. The next factor that is affected by ESG performance is the “regulatory
relationships” of a company- that is the company’s relationship with governmental and other regulatory
authorities. Companies that are more responsible in terms of their environmental footprint and overall
sustainability, are less likely to face punitive action from these regulatory authorities, potentially saving them
millions in legal costs.4
The ESG performance of a company can also play a key role in attracting new talent, given the socially
conscious workforce of the new generation. Millennial workers are often looking to find companies with high
standards of social and business sustainability. Hence, a higher standard of social responsibility can play a key
role in bringing in new talent. A similar ideology can be thought of from an investor’s perspective, with them
identifying higher growth potential in companies with higher ESG scores, hence leading to higher potential
capital for the company.5 In line with recent developments, brokerage firms and mutual fund companies have
also started offering exchange traded funds and other financial products that are in line with the ESG criteria.6
According to estimates by Bloomberg Professional Services, Global ESG assets are on track to exceed 53 trillion
dollars by 2025, hence forming more than a third of the total 140.5 trillion dollars in projected assets under
management.7 The ESG sector is hence just at the beginning of its growth and is deemed to be one of the most
promising sectors to consider for the next 5-10 years, for anyone as an investor.
ESG Norms and Reporting in India
India took its first major step towards sustainable corporate growth in 2013, with the introduction of the
Companies Act, replacing the Companies Act (1956). The Companies Act regulates the institution and operation
of all corporate entities in India. With the incorporation of this Act, India became the first country to mandate
Corporate Social Responsibility, taking forward the recommendations of the National Voluntary Guidelines
(2011). The introduction of the Companies Act brought with it several new provisions including- self-regulation
with respect to transparency and disclosures, requirements for public companies to have independent directors,
mandatory formation of CSR committees and policies, providing more power to company shareholders and
representation of small shareholders, and the introduction of the National Company Law Tribunal replacing the
existing Company Law Board.8
The introduction of the Companies Act essentially devised a solution, at least in theory, to increase transparency
and disclosures, along with ensuring that companies are held accountable for the vested interests of their
stakeholders. Additionally, in 2015 the top 500 firms by market capitalization were also instructed by the
Securities and Exchange Board (SEBI) to publish a Business Responsibility Report (BRR) according to the
format prescribed by the National Voluntary Guidelines (2011) (increased from the top 100 firms in 2012), to
ensure that appropriate disclosures and transparency were mandated.9 The BRR provides a complete
understanding of the governance, business responsibility and social sustainability of companies and has been an
influential step taken by the government in propagating the relevance of the ESG sector. Business Responsibility
Reporting was updated as per the National Guidelines on Responsible Business Conduct (NGRBC) as of 2019
and has transitioned to Business Responsibility and Sustainability (BRSR) reporting as of 2021.10
The Business Responsibility Report is divided into 5 major sections: the first section contains general
information about the company such as its industry/ sector, products, services, markets et cetera. The second
section focuses on the key financials of the organisation such as the turnover, profits, paid up capital and its
Corporate Social Responsibility (CSR) contributions. The next two sections focus on business responsibility
initiatives at subsidiaries of the company and the overall company structure, governance policies and other
policies that align it with the prescribed standards of business responsibility. The fifth and last section,
“Principle-wise Performance”, contains information on the indicators used to assess the company’s performance
relative to the 9 business responsibility principles outlined by the National Voluntary Guidelines (2011).
Findings of this Article
This article refers to an ESG Performance ranking from the platform “Futurescape”, which uses a measure called
the “Spread” in its analysis of companies. The “Spread” is basically a combined score of a company’s
environmental, social and governmental parameters.11 Futurescape provides a ranking of the top 10 listed
companies by ESG parameters and this has been referred to for analysis in this article. The top 10 ranked
companies in terms of ESG parameters are from a variety of sectors and industries, however interestingly, they
do not feature any public sector companies. No particular group or sector of companies dominates the top 10
performers, with this list also featuring diversified organisations such as ITC and Grasim Industries. Godrej
Consumer Products is the highest rated company in terms of ESG performance.12
However, there is a caveat in the evaluation of these companies in terms of ESG scores. The improvement in
performance of these companies leans towards the Environmental parameter, as the trend amongst Indian
corporates often showcases higher scores for the Environmental criteria, with significant scope for improvement
in the Social and Governance parameters.13 The company’s scores are an average of the scores of the E, S and G
parameters, and hence an increase in the Environmental score contributes equally to an increase in the rankings.
Despite improvements in recent years, corporates at an Indian level have still not been found to consistently
match the standards of business and governance of the global economy, which partially skews their ESG
rankings.
Through this article, these top 10 companies have been analysed and compared in terms of their top line and
bottom line figures, debt, CSR, employee benefits et cetera, to provide an understanding of what differentiates
them from companies with a relatively lower ESG score. As all of these companies are listed, it was possible to
obtain their financials through their annual reports and financial statements. This article carried forward its
approach through a thorough analysis of the company annual reports, with particular focus on the income
statements and balance sheets. Along with the basic given figures, this article also takes into account profit
margins, return on net worth, debt-equity and other financial ratios, which have all been calculated through
plotting the company financials on Excel for the years 2019 through 2021. The formulas for calculation of these
ratios can be found in the appendix attached at the end of the article.
The list of companies that have been taken into account for analysis are:
1. Godrej Consumer Products Ltd
2. Infosys Ltd
3. Wipro Ltd
4. Tata Chemicals Ltd
5. ITC Ltd
6. Jubilant Life Sciences Ltd
7. Grasim Industries Ltd
8. Vedanta Ltd
9. Tata Power Company Ltd
10. JSW Steel Ltd
2019 Figures
2020 Figures
Company Name
Go-drej
Info-sys
Wipro
Tata Che
ITC
Jubi-lant
Gra-sim
Vedanta Tata Pow
J
Total Revenue
5474.45
81747
52883. 60
3229.44
49821. 0
3313.1 3
16607. 5
38728
8309. 01
6
Profit/Year
1179.89
15543
8680. 70
6840. 22
15136
321.14
1288. 00
-6732
148.12
5
LT Borrowings
0.00
0.00
25.10
10.41
5.63
1327. 91
2714.18
21629
9825. 33
3
Emp Benefits Exp
319.22
42434
26171. 80
250.28
2658.2
264.90
1559. 98
765
610.71
1
CSR
19.49
360
181.80
37.81
326.49
4.40
58.98
52.66
3.80
1
Debt/ Equity
0.06
0.00
0.11
0.00
0.00
0.75
0.13
0.46
1.02
1
Ret On Assets
17.34%
19.42%
13.12%
49.94%
20. 87%
6.24%
2.54%
-4.37%
0.39%
4
Net Profit Marg
21.55%
19. 66%
17.22%
234. 23%
33. 17%
10. 22%
8.00%
-18. 77%
1.91
8
Current Ratio
1.20
2.88
2.78
2.81
4.02
1.25
1.10
0.43
0.53
0
Quick Ratio
0.81
2.88
2.77
2.22
3.13
0.78
0.75
0.30
0.47
0
Op Profit Marg
26.44%
25.3 4%
20.24%
24.58%
39.24%
11.81%
13.27%
16.25%
37.81%
1
Ret/Net Worth
22.86%
24.97%
18.68%
57.11%
23.64%
12.32%
3.42%
-9.08%
0.97%
1
Basic EPS (Rs)
11.54
36.34
16.67
268.5
12.33
20.16
19.63
-18.10
-0.08
2
(Figures in Rs Crores)
2021 Figures
Company Name
Godrej
Infosys
Wipro
Tata Che
ITC
Jubilant
Grasim
Vedanta Tata Pow
J
Total Revenue
6254.33
88379
52682.30
3218.03
51776
2757.38
12900
48388
7429.55
7
Profit/Year
1224.34
18048
10060.90
479.11
13032
214.48
905.00
10446
921.45
8
LT Borrowings
0.00
0.00
14.10
4.85
5.28
420.00
3089.46
20913
13168.5
3
Emp Benefits Exp
417.09
45179
26467.30
250.42
2821
220.67
1391.29
903
649.07
1
CSR
31.08
412
251.20
20.92
353.46
5.83
84.66
38.86
39.24
7
Debt/ Equity
0.00
0.00
0.13
0.00
0.00
0.38
0.09
0.29
1.05
0
Ret On Assets
16.73%
20.63%
15.36%
3.41%
17.75%
5.89%
1.74%
7.54%
2.29%
6
Net Profit Marg
19.58%
21.00%
20.00%
15.97%
28.65%
7.29%
7.30%
28.05%
14.90%
1
Current Ratio
1.55
2.74
2.50
2.77
3.13
0.55
1.15
0.57
0.45
0
Quick Ratio
0.98
2.74
2.50
2.27
2.20
0.55
0.80
0.42
0.39
0
Op Profit Marg
26.42%
28.46%
23.96%
20.37%
34.12%
15.76%
12.62%
23.13%
29.39%
2
Ret/Net Worth
19.25%
25.23%
22.23%
3.61%
22.09%
16.72%
2.11%
13.60%
Basic EPS (Rs)
11.97
42.37
19.11
18.81
10.59
13.47
13.78
28.23
5.01%
1
2.49
3
(Figures in Rs Crores)
Conclusion
Several recent reports suggest that customers who are “eco-active” in terms of their consumption habits and
patterns, will grow rapidly over the next 10 years.14 Hence, for the major corporations to continue to be
competitive at the highest level, a shift will need to be implemented in not just their sustainability and
governance policies, but in their overall business philosophy. The ESG sector is not just limited to the financial
results of companies in the short run, but is about how businesses are implementing significant policy changes to
ensure a feasible and sustainable future.
The company financials published and discussed in this report provide key insights that solidify the above
points. While many companies in the report maintain a low debt-equity ratio, there are also several exceptions
that stand out with large long term borrowings and debt indicators. Similarly, companies such as Vedanta and
Tata Power have had years where their shareholders suffered losses with negative Earnings Per Share (EPS)
figures, while other companies experienced low and even negative profit margins and return on net worth.
Despite recent discrepancies, these companies still feature at the very top of the ESG charts15, as their overall
approach to sustainability and transparency ensures customer loyalty and support. Both customers and investors
look not only at the financials published by companies, but their consolidated approach in ensuring a viable and
sustainable business for the future. Stakeholders are looking for businesses that are answerable to them in all
facets of their running, functioning and reporting. The companies in this report have been consistently diligent
with their integrated annual reporting, ensuring that they are transparent with their stakeholders in terms of their
management, governance and social practices.
The ESG sector is capturing the consumer and investor market as the requirements of the business world are no
longer merely profitability and positive financial indicators, but a business that is well-founded in its
sustainability and transparency practice. The increasing growth in the financial size of this sector will likely
cause major corporations to transition from existing business practices to more socially responsible ones, if they
have not already, showing that the growth of ESG has some reverse causality to it. The trend associated with
consumers preferring more sustainable products and services over ones that are less so can be a deciding factor
in reducing the environmental footprint of the corporate world for the foreseeable future.
1 Team, The Investopedia. “Environmental, Social, & Governance (ESG) Criteria Definition.” Investopedia.
Investopedia, May 18, 2022.
https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp.
2 Sanghvi, Ajit R. “Top Performing ESG Companies in India & How Are Their Stocks Faring.” The Economic
Times, 2020. https://economictimes.indiatimes.com/markets/stocks/news/top-performing-esg-companies-inindia-how-are-their-st ocks-faring/articleshow/79935953.cms.
3 Institute, CFA. “ESG Investing and Analysis.” CFA Institute. Accessed June 7, 2022.
https://www.cfainstitute.org/en/research/esg-investing.
4 “Why ESG Is Here to Stay.” McKinsey & Company. McKinsey & Company, May 26, 2020.
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/why-esg-is-here-tostay.
5 “Why ESG Is Here to Stay.” McKinsey & Company. McKinsey & Company, May 26, 2020.
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/why-esg-is-here-tostay.
6 Team, The Investopedia. “Environmental, Social, & Governance (ESG) Criteria Definition.” Investopedia.
Investopedia, May 18, 2022.
https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp.
7 Intelligence, Bloomberg. “ESG Assets May Hit $53 Trillion by 2025, a Third of Global AUM.”
Bloomberg.com. Bloomberg, February 23, 2021.
https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/.
8 “Companies Act 2013 – Salient Features of the Indian Companies Act 2013 [UPSC GS-II].” BYJUS. BYJU’S,
December 24, 2021. https://byjus.com/free-ias-prep/indian-companies-act/.
9 Bhatia, Atishay. “ESG Reporting in India to Be Mandatory for Big Firms from FY 2022-23.” India Briefing
News, October 29, 2021.
https://www.india-briefing.com/news/esg-reporting-india-new-disclosure-requirements-sustainability23471.html/.
10 “BRSR:
Business Responsibility and Sustainability Reporting.” Consultivo, January 23, 2022.
https://consultivo.in/brsr-business-responsibility-sustainability-reporting-faqs/.
11
Futurescape.
“ESG
Performance.”
Futurescape.
Accessed
https://www.futurescape.in/responsible-business-rankings/esg-performance/.
June
7,
2022.
June
7,
2022.
12 Futurescape. “ESG Performance.” Futurescape. Accessed June 7, 2022.
https://www.futurescape.in/responsible-business-rankings/esg-performance/.
13
Futurescape.
“ESG
Performance.”
Futurescape.
Accessed
https://www.futurescape.in/responsible-business-rankings/esg-performance/.
14 Jones, Debbie. “Key Takeaways from the ESG Conference.” Deutsche Bank Research, April 27, 2022.
https://www.dbresearch.com/servlet/reweb2.ReWEB?rwsite=RPS_ENPROD&rwobj=ReDisplay.Start.class&docu ment=PROD0000000000522888.
15 Futurescape. “ESG Performance.” Futurescape. Accessed June 7, 2022.
https://www.futurescape.in/responsible-business-rankings/esg-performance/.
References
1. Team, The Investopedia. “Environmental, Social, & Governance (ESG) Criteria Definition.” Investopedia.
Investopedia, May 18, 2022. https://www.investopedia.com/terms/e/environmental-social-and-governance-esgcriteria.asp.
2. Sanghvi, Ajit R. “Top Performing ESG Companies in India & How Are Their Stocks Faring.” The Economic
Times, 2020. https://economictimes.indiatimes.com/markets/stocks/news/top-performing-esg-companies-inindia-how-are-their-st ocks-faring/articleshow/79935953.cms.
3. Institute, CFA. “ESG Investing and Analysis.”
https://www.cfainstitute.org/en/research/esg-investing.
CFA
Institute.
Accessed
June
7,
2022.
4. “Why ESG Is Here to Stay.” McKinsey & Company. McKinsey & Company, May 26, 2020.
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/why-esg-is-here-tostay.
5. Intelligence, Bloomberg. “ESG Assets May Hit $53 Trillion by 2025, a Third of Global AUM.” com.
Bloomberg, February 23, 2021. https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillionby-2025-a-third-of-global-aum/.
6. “Companies Act 2013 – Salient Features of the Indian Companies Act 2013 [UPSC GS-II].” BYJUS.
BYJU’S, December 24, 2021. https://byjus.com/free-ias-prep/indian-companies-act/.
7. Bhatia, Atishay. “ESG Reporting in India to Be Mandatory for Big Firms from FY 2022-23.” India Briefing
News,
October
29,
2021.
https://www.india-briefing.com/news/esg-reporting-india-new-disclosurerequirements-sustainability-23471.html/.
8. “BRSR: Business Responsibility and Sustainability Reporting.” Consultivo, January 23, 2022.
https://consultivo.in/brsr-business-responsibility-sustainability-reporting-faqs/.
9. Chauhan, Sandeep Singh. “Recent Amendment on Business Responsibility Reporting (BRR).” TaxGuru,
December 15, 2021. https://taxguru.in/sebi/amendment-business-responsibility-reporting-brr.html.
10. “ESG Performance.” Futurescape. Accessed June 7, 2022.
https://www.futurescape.in/responsible-business-rankings/esg-performance/.
11. Jones, Debbie. “Key Takeaways from the ESG Conference.” Deutsche Bank Research, April 27, 2022.
https://www.dbresearch.com/servlet/reweb2.ReWEB?rwsite=RPS_ENPROD&rwobj=ReDisplay.Start.class&docu ment=PROD0000000000522888.
Appendix
Debt/Equity Ratio = Total Debt/Total Equity
Return on Assets (Ret on Assets) (%) = Net Income/Average Assets
Net Profit Margin (Net Profit Marg) (%) = Profit After Tax/Net Sales
Current Ratio = Current Assets/Current Liabilities
Quick Ratio = Current Assets-Inventory/Current Liabilities
Operating Profit Margin (Op Profit Marg) (%) = Profit before interest, taxes and exceptional items/Net Sales
Return on Net Worth (Ret on Net Worth) (%) = Profit After Tax/Shareholder’s Equity Basic Earnings Per Share
(Basic EPS), as per company annual reports
Total Revenue, Profit For the Year (Profit/Year), Long Term Borrowings (LT Borrowings), Employee
Benefits Expense (Emp Benefits Exp), CSR figures as per company annual reports
(Figures in Rs Crores)