INDIA ESG BACKGROUNDER

NAMRATA RANA

NEW ZEALAND HAS BECOME THE FIRST COUNTRY TO INTRODUCE A LAW THAT WILL REQUIRE BANKS, INSURERS AND INVESTMENT MANAGERS TO REPORT THE IMPACTS OF CLIMATE CHANGE ON THEIR BUSINESS

- All banks with total assets of more than NZ$1 billion ($703 million)

- Insurers with more than NZ$1 billion in total assets under management

- All equity and debt issuers listed on the NZ stock exchange

- 200 of the country's biggest companies and several foreign firms that meet the NZ$1 billion threshold will come under the legislation

¡ This legislation is in line with the government’s policy to create a NetZero country. NZ public sector will be carbon-neutral by 2025 and will also buy only zero-emissions public transport buses.

US SEC IS MODERNIZING ESG AND CLIMATE DISCLOSURE STANDARDS

¡ The following steps are being considered to enhance the reliability around existing climate and ESG disclosures

- Sustainability standards board

- ESG-specific policies and procedures requirements

- Investor bulletin to help investors understand ESG

- Enhanced transparency around proxy voting

- Auditor attestation of current voluntary sustainability reporting

- Better standards or guidance for how auditors currently address companies’ climate and ESG-related financial statement disclosures

- Enhanced transparency by credit rating agencies regarding how they consider ESG factors

ESG IS ACCELERATING

¡ Several large banks and fund houses are realising that their definition of what is financially relevant needs to involve environmental, social and governance (ESG) factors. These issues are now becoming critical in investment decision-making. Investors are incorporating these to reduce risk and seize opportunities by fine-tuning equity exposures, searching for excess returns, remaking bond portfolios and tapping the green bond market. ESG represents about one-quarter of all professionally managed assets around the world.

¡ In 2020 the momentum has grown as the pandemic has highlighted the importance of responsible, environmentally friendly growth. Further, there are increasing demands for a green recovery the world over. Customers have also become more informed and have started actively looking for sustainable products and companies that treat their stakeholders well. At the same time, investors are increasingly investing in ESG funds and the volumes of these funds have skyrocketed. It has been shown that companies that rank high on ESG provide higher returns and tend to have lower cost of capital.

57% OF APAC INVESTORS EXPECT TO HAVE “COMPLETELY” OR “TO A LARGE EXTENT” INCORPORATED ESG ISSUES INTO THEIR INVESTMENT ANALYSIS AND DECISION-PROCESSES BY THE END OF 2021

The area that will have the greatest impact on investments over the next 3 to 5 years for institutional investors with over $200 billion of assets

¡ Climate risk - 31% of investors

¡ Disruptive technologies, such as artificial intelligence - 19% of investors,

¡ Sophistication of ESG measurement - 14% of investors,

¡ Data sourced from MSCI’s 2021 Global Institutional Investor Survey.

INDIATHE RISE OF ESG

¡ The Indian regulator SEBI has mandated quantitative and standardized disclosures on ESG parameters to enable comparability across companies, sectors and time for top 1000 listed Indian firms. This will be called the Business Responsibility and Sustainability Report (BRSR). The disclosures will include

- material ESG (environmental, social and governance) risks and opportunities,

- approach to mitigate or adapt to the risks along with financial implications

- sustainability related goals and targets and performance

- these can be cross-referenced to disclosures based on GRI, SASB, TCFD or Integrated Reporting

India’s top companies

SOURCE https://www.futurescape.in/responsible-business-rankings/

RESPONSIBLE BUSINESS RANKINGS METHODOLOGY AND PARAMETERS

¡ SOURCE https://www.futurescape.in/responsible-business-rankings/

PERFORMANCE IMPROVED ACROSS YEARS AND PARAMETERS

¡ SOURCE https://www.futurescape.in/responsible-business-rankings/

SOURCE https://www.futurescape.in/responsible-business-rankings/

THE RESPONSIBLE BUSINESS RANKINGS REPORT INDIA

COMMITMENTS FROM INDIA CEO FORUM ON CLIMATE CHANGE

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The signatories will pursue the development, exchange and implementation of best practices and strategies on GHG emission reductions and building climate resilience as part of a sustainable development approach.

Top companies

1. Promotion of renewable energy

2. Enhanced energy efficiency

3. Enhanced material efficiency

4. Improved Processes and Technologies

5. Water efficient processes

6. Sustainable and green mobility

7. Research and development

8. Planned afforestation

9. Waste management and recycling

The signatories will develop and submit an annual report to Ministry of Environment,

Forest and Climate Change (MoEFCC) providing qualitative and quantitative

information on their contribution to these 9 areas.

05 NOV 2020

THE WINNING SHIFT

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Reliance plans to develop next-gen carbon capture and storage technologies and turn carbon neutral by 2035

Dr Reddy's aims to cut greenhouse gas emissions by 55% by 2030

Mondelez International to remove 65000 tons of packaging and shift to 100% packaging designed to be

recyclable.Diageo will champion gender diversity with an ambition to achieve 50% representation of women in leadership roles by 2030.

Schneider Electric to provide 80 million people access to energy by 2030 and provide 1 million underprivileged people with skills and jobs training in energy by 2025.

Microsoft will be carbon negative by 2030 and will deploy $1 billion of it’s capital in a new Climate Innovation Fund to accelerate the development of carbon reduction and removal technologies.

RENEWABLE ENERGY SOURCES

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Sector Significant renewable energy sources used (% companies studied)

2018-19 Wind BiofuelSolar Waste Heat Recovery

Capital goods

100%

100%

100%

100%

100%

100%Diversified

Auto

Banks

IT

Telecom

Utilities

Materials

Healthcare

Energy

Consumer Staples

80%

75%

100%

83%

83%

30%

88%

100%

54%

17%

88%

67%

33%

33%

86% 86%

54%

50%

61%

50%

Almost all companies are adopting solar energy sources

COMPANIES ARE INCREASINGLY TALKING OF BEING WATER-POSITIVE

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Companies already water-positive Companies that aim to be water-positive in near future

Infrastructure - L&T, HCC, Havells India

Auto - Bajaj Auto (Waluj and Chakan Plants)

Consumer Goods - Coca-Cola India, Asian Paints

Cement - Dalmia Bharat Group (in 3 plants), AmbujaCements

Oil - HPCL’s Rajahmundry LPG Plant

Godrej Consumer Products 2020: Aim to achieve water positivity by implementing the 3Rs

Dabur IndiaWater-positive in the next two years

MaricoWater-positive by 2022

TCSWater-neutral by 2020

Ambuja CementsAims to be six times water positive by 2030

COMPANIES WITH WATER MANAGEMENT PROGRAMMES

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Sector 4 or more water management programmes1 or more water management programme

88%80%

87%

90%100%100%100%100%

50%40%

32%57%

78%

38%46%

33%50%

60%40%

70%42%

67%6%

20%

14%

0%

Capital Goods

Other industrials

Other financials

Telecom

Financials

IT

Utilities

Materials

Healthcare

Energy

Diversified

Cons. Staples

Cons. Discretionary

across stakeholder groups such as community, suppliers, employees and customers

SDG MAPPING Our study indicates that that 60% of the top 100 companies incorporate SDGs into their responsible business actions. All the top 10 companies map their business goals with SDGs. The leading sectors are Diversified and IT where 80% and more companies have mapped and the laggards are sectors such as Other Financials.

On average companies map 12 SDGs with a low of 1 to a maximum of 17. Of the companies that mapped their SDG goals, 54 (87%) were in the private sector and 51 (82%) were manufacturing companies. In terms of focus, the SDGs 8 (decent work), 6 (clean water and sanitation), SDG 12 (responsible consumption and production), SDG 13 (climate action), SDG 3 (good health & well-being), and, SDG 4 (quality education), and occupy the top position with over 82% companies reporting so. On the other hand, SDG 14 (life below water) was mapped by the least number of companies – 32%.

FOCUS AREAS

Climate change Transport Energy

Water Food Agriculture

Health New Materials Waste

THE IMPERATIVES FOR SUSTAINABLE EXPERIENCE TRANSFORMATION

Digital transformation

Circularity and products

SDG Commitments

ESGClimate crisis

FINDING BALANCE