Study Says 73% Of Esg Controversies Due To Business Ethics

Rivai H Tukimen

NEW DELHI: Business ethics have emerged as major reason for controversies, at 72.6%, both in services as well as manufacturing sectors, as per a research and analysis carried out by ESGRisk.ai with NSE 600 companies for the financial year 2020-21 (FY21).

This is despite the fact that corporates increasingly looking to adopt sustainable business practices.

Globally, there is a spotlight on Environmental, Social, and Governance (ESG) themes as more and more investors believe sustainable issues help manage investment risks.

The report said that among industries that have experienced the most controversies after banking & financial services, are pharmaceuticals and metals.

ESGRisk.ai also reported a rise in contentions over environmental management issues in FY21. In several cases, pollution control boards’ regulations with respect to emissions, water pollution, and environmental management were violated.

Further, in the social category, a rise in controversies related to employee safety has been observed. Occupational health and safety hazards are largely attributed to plant fires and explosions, inadequate maintenance of machinery, and poor handling by workers.

According to ESGRisk.ai’s research, corporate frauds in India are frequent — whistle blower complaints, corrupt audit practices and compliance fines are typical corporate governance controversies.

Further, the controversies in the key issue of business ethics grew significantly between FY20 and FY21. Several of the controversies stem from violations of insider trading rules and non-compliance with the Securities and Exchange Board of India’s Listing Obligations and Disclosure Requirements (LODR) 2022 guidelines.

“The ESG parameters are gaining a lot of traction these days and the banking & financial services industry (BFSI) is no different. Offering sustainable financing to customers, refinancing existing debts with sustainable instruments, and incorporating positive screening of lending portfolio are some of the significant ESG issues,” said Sankar Chakraborti, chairman, ESGRisk.ai and group CEO, Acuité.

“ESGRisk.ai analysis suggests that the BFSI sector has jumped on the ESG bandwagon with an improvement in performance on critical issues such as data privacy & security, equal opportunity, employee development and audit committee functioning. However, on the flip side, the BFSI sector accounts for most of the controversies happening in the ESG space,” Chakraborti added.

ESG Risk Assessments & Insights (ESGRisk.ai) is India’s first ESG rating company and an Acuité group company.

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