Crisil Ratings announced on Saturday that it will begin separately disclosing the impact of environmental, social and governance (ESG) metrics when assigning credit ratings.
This decision follows the increase in the ESG impact in investment decisions.
In particular, ESG (environmental, social and governance) factors determine a company’s impact on society and the environment. They provide extra-financial insight into the outlook for future opportunities and risks for the company.
“The past two years have seen ESG-focused investments gain traction. ESG assets stood at $37.8 trillion as of March 2021 and accounted for approximately one-third of global assets under management (AUM),” said said the agency.
“India also followed the trend, with the AUM of ESG-focused funds totaling over Rs 12,000 crore in December 2021.”
Accordingly, the assessment will be based on a proprietary framework that weighs sector impact on environmental and social factors, and a company’s relative performance on ESG aspects.
“Furthermore, as investors begin to screen opportunities through the ESG lens, sustainability metrics may impact the cost and availability of funds for companies. These companies typically access capital markets, both from shares and debt, and/or rely on foreign investors to meet their financing needs.
“Crisil Ratings will therefore assess and disclose the impact of ESG aspects on the credit risk profiles of companies, which will underline their ability to raise funds and, therefore, their financial flexibility. This, however, depends on the availability of ESG information,” he added.
In addition, the move comes as the top 1,000 listed companies will now be required to disclose non-financial information for the next financial year in accordance with SEBI’s Corporate Responsibility and Sustainability Reporting Standards (BRSR).
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