Acuité, a local rating company launched a risk assessment framework on social impact investment, which should help investors/lenders to evaluate creditworthiness of any project that is compliant with certain global standard in terms of environmental, social and corporate governance or ECG.
The product is christened as ESG Risk AI, which will assess a company’s ESG performance and assign a rating, the company said in a release.
“With a total asset under management (AUM) of over $40 trillion invested globally using some form of ESG compliance and India’s increasing integration with global markets our ESG Ratings will help investors incorporate ESG factors in their investment decisions,” said Sankar Chakraborti, Group CEO, Acuité.
In India, only 7% of domestic AUM is invested in ESG funds at present and our internal estimates show this will grow to 30% in a decade.
In this, around 75% of FII funds will be based on ESG themes. These figures clearly highlight the growing significance of Environmental, Social and Governance factors in investment decisions.
ESG Risk AI will provide ESG ratings of the top 1000 Indian listed companies, by evaluating their performance on Environment, Social, and Governance parameters as well as their reporting transparency. Its assessment approach includes identification of relevant risks, estimation of materiality and polarity of the risks, and evaluation of risk management framework.
S.S. Mundra, Chairman, Acuité Ratings & Research said, “Indian economy will be facing tremendous challenges over the next 10 years on environment, social and governance fronts. But it will also provide India with a great opportunity to be a role model in sustainable development.
A robust ESG rating framework will help in creating economic incentives for adoption of ESG best practices by corporate India,” he said.