Landscape of Environmental & Social Performance Disclosure and Reporting: for Institutional Investors targeting India
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Working Paper Summary
Working Paper Summary
Landscape of Environmental & Social Performance Disclosure
and Reporting: for Institutional Investors targeting India
Part of a study being carried out
to identify investor interest for
consolidating behind a common
standard for capturing
environmental and social
performance and determining
policy linkages to drive its
adoption
Study leadWorking Paper Summary
Acknowledgments
The authors of the report would like to extend gratitude The authors would like to acknowledge experts from the following
to the following people, who have contributed to the organizations for their inputs to the study through interviews
progress of the study with their expertise and guidance
Development Financial Institutions Asset Managers
and have reviewed the landscape paper • CDC Group • ING Investment Management (India)
• Financierings-Maatschappij voor • Kotak Group
Padmini Srinivasan CCGC, IIM Bangalore
Ontwikkelingslanden (FMO) • LGT Capital Management
Vasanthi Srinivasan CCGC, IIM Bangalore • International Finance Corporation • Morgan Stanley Investment Management
PD Jose CCGC, IIM Bangalore • Infrastructure Development Finance • Nomura Capital
Ritu Kumar Actis Company • Taurus Mutual Fund
Ben Thornley Pacific Community Ventures • Infrastructure Leasing & Financial • SNS Asset Management
Sarah Gelfand Global Impact Investing Network Services Banks
• Small Industries Development Bank of • Rabo India Finance
Margot Brandenburg Rockefeller Foundation
India (SIDBI) • Yes Bank
Justina Lai Rockefeller Foundation Pension Funds Other Stakeholders
California State Teachers’ Retirement • Carleton Centre for Community Innovation
System • Council of Institutional Investors
For additional information, please contact Private Equity / Venture Capital • GS Sustain
• Aavishkaar Venture Management • Harvard Business Research centre
skapur@cKinetics.com
Services • IDFC Foundation
+91.11.4050.7277 • Actis • IFMR trust
• Acumen Fund • Institute of Cost and Works Accountants of
• Aloe Private Equity India
• Barings Private Equity • International Corporate Governance
• BTS Investment Advisors Network
• Lok Capital • ING Investment Management
• Nalanda Capital • National Stock Exchange of India
• Rianta Capital • Responsible Investment Research
The study is led by cKinetics and supported by the • Tata Capital Association
Rockefeller Foundation. In addition to investors, it engages Asset Managers • Social Stock Exchange Asia
key stakeholders such as Centre for Corporate Governance • Blue Orchard Finance • UN Principles for Responsible Investment
and Citizenship (CCGC) at Indian Institute of Management • BNP Paribas Asset Management • Vigeo
• Canara Robeco Asset Management
(IIM) Bangalore, Small Industries Development Bank of
• HSBC Global Banking and Markets (Equity
India (SIDBI) and the National Stock Exchange of India
Research)
(NSE). • ICICI Prudential Life Insurance CompanyWorking Paper Summary
This summary surveys the landscape impacting E&S reporting in India; to
inform investors seeking to converge behind a standardization of E&S
• Globally and in India, institutional investors are increasingly aware of the impact that E&S
(Environmental and Social) factors have on valuations of their portfolio companies.
• Simultaneously, initiatives by the government, and other stakeholders are aiming to drive
measurement and disclosure on E&S issues by businesses and investors.
• In this backdrop, this document summarizes the landscape for E&S reporting in India; to identify
complementarities and gaps that exists and how it is conducive for investors to seek a
standardized E&S framework.
– The complete landscape document is available at: www.cKinetics.com/CrackingTheConundrum
Questions this document answers for investors looking for standardized E&S information:
Why What Which
• Why is E&S relevant for • What are the guidelines, • Which disclosure and reporting
different kinds of investors principles and frameworks for approaches are being used by
investors to integrate E&S finance+ investors to meet
issues into operations their goals of integration
Understanding the landscape will help investors determine whether reasons exists to
standardize E&S reporting frameworks (just like standard financial reporting exists)Working Paper Summary
The landscape finds that the present time is opportune for finance+
investors to drive standardization in E&S reporting frameworks
The timing is opportune for Investors to drive Investors, which incorporate non-financial metrics
a standardized E&S disclosure framework in into their decision making process are referred to as
India for 2 reasons: finance+ investors. It incorporates ‘Sustainable
investors’, ‘Responsible investors’, or ‘Impact
investors’ etc.
Finance+ in India need E&S information and
have similar interest in their need and use of Number and role of financial metrics in decisions
this information
Number of Impact and Non-financial metrics taken into
+ Mainstream investing
Indian Government and global initiatives are
looking to promote responsible business
actions & reporting consideration
Sustainable Investing and
Responsible Investing
Impact
Investing
Finance+ InvestingWorking Paper Summary
We first look at the investor
Finance+ investors that are increasingly present in
drivers for E&S
India need E&S information
Standardization
+
Indian government and global initiatives are looking to
promote responsible business actions & reportingWorking Paper Summary
To begin with a variety of drivers were identified to make E&S
factors relevant to investors…
• We examined the drivers of more than 60
investors across the following groups:
Investor
1. Banks: Both Indian as well as Global banks with Reputation
presence in India
Investor's Operational
2. Development Finance Institutions (DFI’s): again philosophy risk
both Indian and Global
3. Mutual Funds, which fell in 4 categories:
• Indian
Signatory to
• Global MFs with physical presence in India global E&S drivers New product
investor for investors development
• Global E&S funds investing in India initiatives
• Global funds investing in India
4. Private Equity GP's across 3 categories:
Mandate from Marketing to
• E&S seeking investors shareholders/ retail
retail investors /
• ‘Social Investors’ investors/LP's LP's
• Rest of the PE funds Regulatory
compliance
5. Pension Funds across 3 groups:
• Indian
• Global Private Pension Funds
• Global Public Pension Funds Drivers of all 14 investor types mapped to the
8 driversWorking Paper Summary
… and compared the magnitude of the drivers across the 14 investor
types; to find 5 types that have the most to gain from E&S reporting
Global E&S funds targeting India, DFIs (both India and Global), PE investors seeking E&S and
Social Investors are 5 types of investors that benefit most from E&S information availability.
We refer to them collectively as Finance+ investors in this document.Working Paper Summary
The Finance+ investors evaluate their portfolio and target companies
on 8 E&S parameters
• All benefits that accrue to an investment because it is incorporating E&S related measures
fall into one of the following eight parameters
Investee
reputation
and social
license to
operate
International Regulatory
consumer pull compliance
Ability to Lenses New product,
attract capital investors use industries and
and better for their markets
valuation portfolio including BoP
Attract and
Feedstock
retain human
reliability
capital
Better
resource
management
These become the E&S areas that finance+ investors will seek to build uniform
understanding on
Detailed descriptions can be found in the complete Landscape documentWorking Paper Summary
4 benefits of standardized E&S disclosure by companies were identified,
which contribute to the investor appetite to drive standardization
• Comparability of information between companies and also in companies over time, which
would lead to the following benefits:
1. Lowers cost of information collection, which would be true both while making
investments as well as for ongoing monitoring.
2. Identify larger pool of target/ investible companies, which will especially be true of
investors limited in their focus by their own philosophies or mandates by LP’s and
Government.
3. Develop new investment products: In order to develop new financial products related
to sustainability, investors require the relevant E&S data.
• Mission enhancement
4. There are certain Investors who are mandated by their own ethos or through their
stakeholders (limited partners, government, etc) to create a positive environmental
and social impact via their investments. For them promoting standardized disclosure of
E&S information enables them to meet their missions.
It is important to note that, here we are examining the benefits accruing by ‘standardization
of E&S’ and not benefits of E&S (which were highlighted earlier).Working Paper Summary
… and here too found the finance+ investors having the most to gain
from standardization of E&S reporting
Benefits of standardizing reporting on E&S data in portfolio companies by investors
Low cost of info Identifying larger New product Mission
collection pool of investible development enhancement
companies
Indian Low Medium Low Low
Banks
Global Banks with presence in India Medium Medium Low Low
Indian* Medium Medium Low Low
DFI’s
Global* Medium High Low Low
Indian Low Low Low Low
Global MFs with physical presence in Medium Low Low Low
Mutual Funds India
Global E&S funds investing in India* High High Medium Medium
Global funds investing in India Medium Medium Low Low
E&S seeking investors* High High Low Low
Private Equity
‘Social Investors’* High Low Low Low
GP’s
Rest of the PE funds Low Low Low Low
Indian Medium Low Low Low
Pension
Global Private Pension Funds Medium Medium Low Low
Funds
Global Public Pension Funds Medium High Low Low
Low Low benefit for the investor to promote standardized E&S disclosure in the short term
Med Medium benefit for the investor to promote standardized E&S disclosure in the short term
High High benefit for the investor to promote standardized E&S disclosure in the short term
* Indicates the Finance+ investors
Source: cKinetics interviews and analysisWorking Paper Summary
Finance+ investors that are increasingly present in
India need E&S information
+ We now look at the Indian
Indian government and global initiatives are
Government’s and stakeholder
looking to promote responsible business actions &
led drivers for E&S
reporting
Standardization in IndiaWorking Paper Summary
9 State and non-state driven initiatives promoting E&S disclosure and
reporting that cut across sectors were examined…
State (Government of India) driven initiative and policies Non state driven initiatives
Existing Recent On the horizon Multi-stakeholder Investor driven
driven
•Energy conservation •National Voluntary Guideline on •Institute of •Global Reporting •Carbon Disclosure
disclosure (Section 217 Social, Environmental and Chartered Initiative (GRI) India Project (CDP) India
of the Companies Act) Economic Responsibilities of Accountants of India •SME Rating Agency
Business (NVG-SEE 2011) (ICAI)-sustainability of India Green ratings
•SEBI mandate on disclosure for reporting framework •DFI and lender
100 largest listed firms (Nov guidelines
2011)
•Guidelines on Corporate
Governance for Central Public
Sector Enterprises (CPSE 2007)Working Paper Summary
… with the most comprehensive unifying framework being the NVG-SEE
that was announced by the Ministry of Corporate Affairs in 2011...
• The NVG-SEE (National Voluntary Guideline on Social, Environmental and Economic
Responsibilities of Business) represents a Government of India driven framework meant to
encourage “responsible business action”
– It consists of 9 core principles that provides businesses a framework for taking
responsible actions
– There are also 34 representative reporting indicators and development of sector
guidelines are in progress
– The framework is designed on the 'Apply-or-Explain' principle.
• The reporting framework outlined in the NVG-SEE has become mandatory for the largest
listed companies through a SEBI resolution passed on November 24th, 2011.
The NVG-SEE is getting visibility, traction and support from different Government agencies. It
represents an opportunity for finance+ investors seeking E&S information to converge.Working Paper Summary
… and the NVG-SEE also endorses use of other E&S reporting frameworks
providing impetus for global and Indian investors to converge
Reporting process under the NVG-SEE
Scenario Reporting process
Through interviews it
emerged that global Business entities that are preparing Furnish the same report with a
investors prefer a their Business Responsibility reports mapping of the principles of these
global standard; while in a nationally/ internationally guidelines with disclosure
Indian investors prefer recognized framework
complying with the ‘law
of the land’. The NVG-
SEE provides a If not
unifying framework for
both.
Business entities that are not fully Furnish a letter signed by MD/ CEO
capacitated to prepare a detailed indicating commitment to the
report on RB practices Guidelines and a brief on activities
undertaken
If not
Business entities that committed to Furnish a report on the basis of the
furnishing a detailed Business framework
Responsibility reportWorking Paper Summary
To evaluate if E&S related actions may be on the anvil by Indian policy
makers, the Indian interventions were mapped against 20 global ones…
Map of global E&S disclosure and reporting initiatives LEGEND
100% USA
Singapore Finland Sweden: Guidelines for external reporting
Malaysia : Malaysian Stock Exchange CR
disclosure
Japan
80% France China: Shanghai Stock Exchange Guideline on
Environmental Information Disclosure by
China-
Revenue of businesses effected as a % of GDP
SEPA India NVG
Listed Companies
Australia China: Shenzhen Stock Exchange Social
Denmark Responsibility Instructions to Listed Companies
60% China: Shenzhen Stock Exchange Social
contribution value per share
China- Japan Eco China: State-Owned Assets Supervision and
Shanghai Action 21
Administration Commission (SASAC) directive
Stock
Exchange France: Nouvelles Régulations Économiques
40% India-SEBI 2001
China -
India- SASAC Denmark: Law on CSR reporting
Mandatory United UK: Companies Act 2006
NVG South Kingdom
Africa
Finland: Finnish Accounting Standards
Germany
Singapore : Singapore Stock Exchange
20% Malaysia Initiative sustainability policy disclosure
India: SEBI directive on CG disclosure
China- India: SEBI directive on Business Responsibility
Shenzhen reports by top 100 companies by Market Cap
Sweden Stock
Exchange
India: National Voluntary Guidelines on Social,
50% Environmental and Economic Responsibilities
0% .01% 5%
of Business
Percentage of businesses effected USA: SEC filing regulation
Germany: Corporate Governance Code
Voluntary initiative Mandatory initiative Developed Country initiative Emerging Country initiative Australia: Corporate governance guidelines
South Africa: King Report on Corporate
To understand the impact, initiatives were mapped on 2 dimensions: Governance for South Africa (King III), 2009
Japan: Environmental Reporting Guidelines
• Impact of the initiative as a percentage of GDP (2007)
• Percentage of businesses impacted Japan: Eco-Action 21Working Paper Summary
… and found Indian policy, although recent, as being in the progressive
zone
Framework for mapping ‘Progressive’ and ‘Safe’ policies ‘Safe’ mandatory policy zone’ reflect s
100%
mandatory policies, which are directed
USA
Singapore
Progressive Finland toward a small percentage of businesses.
mandatory Voluntary initiatives in the same region could
80% France
policy zone Japan
be deemed over-precautionary.
China-
Progressive
Revenue of businesses effected as a % of GDP
SEPA India - NVG Policy dead zone is the regions where there is
Denmark
Australia
voluntary little impact and yet impacts a large number
60% policy zone of businesses and no policies would exist
China-
Shanghai
Japan Eco
Action 21
there.
Stock
40%
Exchange
India-SEBI
Progressive mandatory policy zone is for
China -
India- SASAC policies that have a significant impact
Mandatory United
NVG South Kingdom through a relatively small percentage of
Africa
Germany companies. This coincides with the ‘Safe
20% Malaysia Safe
Policy voluntary policy zone’.
mandatory
China-
dead-zone
Shenzhen
Sweden Stock policy zone Progressive voluntary policy zone’ consists of
Exchange
50%
voluntary policies that impacts a large
0% .01% 5% 100%
Percentage of businesses effected percentage of the GDP and a large number of
companies.
Voluntary initiative Mandatory initiative Developed Country initiative Emerging Country initiative
Indian initiatives are progressive when contrasted with other emerging and developed markets;
as they confirm with progressive global standards of mandatory policies for large / listed
companies and voluntary policies and support for actions for other businesses.Working Paper Summary
Finance+ investors that are increasingly present in
India need E&S information
The landscape is conducive
+ for E&S standardization but a
Indian Govt and global initiatives are looking to number of hurdles remain…
promote responsible business actions & reportingWorking Paper Summary
To determine if investors can drive the emergence of a standardized
E&S framework in India, a few key questions need to be answered…
1.What is the Common ground between finance+ investors ? Can they agree to a minimum
common framework for E&S disclosure?
• Specifically finance+ investors have been considered, since they stand to benefit the
most in the near-term
2. Would standardized reporting framework, take a sector approach or a universal approach?
3. How does one create the critical mass for standardized disclosure to have value for
investors?
4. What would be the quantitative benefits for investors and businesses? Would standardized
public disclosure/ reporting reduce cost? Can enhanced E&S disclosure by companies be
linked to additional capital flow?Working Paper Summary
… and the earlier questions need to be answered in context of global
investor driven actions around E&S that cut across sectors
Investor driven global principles Global Standards for E&S Reporting Current investor standards
UN Principles for Responsible Global Reporting Initiative (GR) • Each investor category follows
Investment (UNPRI) GRI produces sustainability reporting its own approach of conducting
These principles provide investors a frameworks, the last one being G3 E&S due diligence. For Eg. DFIs
framework to incorporate ESG issues Guidelines, published in 2006. such as IFC, CDC, FMO, DEG
.The 960 signatories include a mix of Initiated by CERES in 1998, the first have their own E &S due
asset owners, investment managers generation of guidelines were diligence criteria.
and professional service partners. released in 2000 and are supported
by Sector Supplements and National • IFC Performance Standards and
Equator principles Annexes . CDC’s standard( toolkit) are
Based on IFC Performance Standards used by many investors for
and World Bank ‘s Environmental, Impact Reporting and Investment their own due diligence.
Health, and Safety Guidelines , these Standards (IRIS)
provide a credit risk management IRIS represents a set of recognized
framework for assessing and terms and definitions for reporting
managing E&S risk in project finance. on social, environmental, and
financial performance. IRIS is an
London Principles of Sustainable initiative of the Global Impact
Finance Investing Network (GIIN).
A set of 7 principles establishing a
mechanism with which financial
markets can promote the financing of
sustainable development.Working Paper Summary
To learn more…
1. The complete landscape document is available for download at:
www.cKinetics.com/CrackingTheConundrum
2. To engage in investor and stakeholders conversations to answer these questions, please
contact: skapur@ckinetics.com
3. To get the final document, tentatively titled “Cracking the Conundrum” please write to:
skapur@ckinetics.comWorking Paper Summary
About cKinetics
About cKinetics
cKinetics is an operational consulting and strategic services firm exclusively focused on shaping
scalable sustainability solutions with businesses and investors.
With operations in India and in the United States, the firm has 3 focus areas: (a) resource efficiency
on the fronts of carbon, energy, water and waste; (b) renewable energy and (c) smart
infrastructure.
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