In a significant move, Crisil Ratings on Saturday said it will start disclosing the impact of environmental, social and governance (ESG) parameters separately when assigning credit ratings.
The move comes on the back of increasing ESG impact in investment decisions.
Notably, the ESG (environmental, social, and governance) factors determine a company's impact on society and environment.It gives a non-financial glimpse on the prospects of future opportunities and risks to the business.
"The past couple of years have seen ESG-led investments gain traction. ESG assets stood at $37.8 trillion as of March 2021, and accounted for around a third of global assets under management (AUM)," the agency said.
"India has also caught on to the trend, with the AUM of ESG-focused funds totting up to more than Rs 12,000 crore as of December 2021."
Accordingly, the assessment will be based on a proprietary framework that weighs sectoral impact on environment and social factors, and the relative performance of a company on ESG aspects.
"Additionally, with investors beginning to screen opportunities through the ESG lens, sustainability parameters can have a bearing on the cost and availability of funds for corporates. Such corporates generally access the capital markets, both equity and debt, and or rely on foreign investors to meet their funding needs.
Credit risk profiles of companies
"Crisil Ratings will, therefore, assess and disclose the impact of the ESG aspects on the credit risk profiles of companies, which will underscore their ability to raise funds and, in turn, financial flexibility. This, however, is predicated on the availability of ESG information," it added.
In addition, the move comes as the top 1,000 listed companies will now have to mandatorily disclose non-financial information from next fiscal under SEBI's Business Responsibility and Sustainability Reporting (BRSR) norms.