One of the companies helping investors integrate ESG Solutions into their investment decisions is ESGDS, a Mumbai-based company with a presence in Australia and Dubai. In an interaction with ET Online, Ramnath Iyer, the firm’s co-founder and CEO, spoke about the various aspects around the evolving nature of ESG compliances in the country and the likely future of the segment. Edited excerpts:ET: What are the primary challenges institutional investors face when measuring ESG performance?
Ramnath Iyer: Primary challenges in ESG performance measurement arise from a lack of standardised metrics, evolving regulations and insufficient granular company information. For example, while the disclosures on Scope 2 emissions (indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling) have increased, often companies don’t disclose emissions for all their facilities or use non-standard metrics in disclosing emissions.
The other notable challenges are difficulty determining material ESG factors given business complexities and effective stakeholder engagement, which proves challenging for institutional investors seeking to steward companies to enhance ESG performance and disclosure practices.
ET: Can you expand on the importance of ESG standardisation for investors and companies, and how it ultimately benefits the market?
RI: Different companies currently use different methodologies for the derivation of basic metrics, making it difficult for investors to compare and assess ESG performance consistently. For example, there are multiple conversion tables for the estimation of CO2 emissions. And the estimates due to changes of conversion factors can vary by over 10%. Standardised ESG disclosures enhance comparability, enabling better-informed investment decisions and more efficient capital allocation. This transparency fosters trust, provides visibility on the risk impact, and communicates alignment with sustainable practices.
ET: How do recent regulations like SEBI’s green debt issuance and sovereign green bonds impact the market, and how does ESGDS help clients navigate these new regulations?
RI: According to revised disclosure requirements for ‘Issuance and Listing of Green Debt Securities’, SEBI came out with a circular earlier this year outlining the criteria that issuers of green debt securities should follow to avoid greenwashing.
SEBI said in the circular that an issuer of green bonds should not use misleading labels, hide trade-offs or cherry-pick data from research to highlight green practices while obscuring others that are unfavourable. It also asked issuers to ensure that they continuously monitor the transition to a more sustainable form of operation.
It has prescribed additional disclosures for issuing transition bonds, a subcategory of green debt securities, to check misallocation. The market regulator has asked companies to identify interim targets such as how much they plan to reduce the emissions, project implementation strategy, technology for implementation, and the mechanism to oversee the utilisation of the funds raised through transition bonds.
Ramnath Iyer, Co-Founder and CEO, ESGDS
ET: With heightened consumer expectations and government mandates, how do you see the Indian ESG landscape evolving in the next few years?
RI: India is among the first in the world to standardise ESG disclosures, regulate ESG rating providers, and mandate reasonable assurance. These regulations reduce the gap India has with some of the global jurisdictions in Europe and other developed countries. With improving transparency, we will start seeing increasing confidence in Indian corporates’ ability to manage ESG risks which will eventually translate into more fund flow. India’s ESG investments have grown from $330 million in 2019 to $1.3 billion in 2023 and with new measures by SEBI aimed at improving transparency, we could see this boom continuing.
ET: Could you provide an example of how a VC or bank utilises ESGDS’s solutions to analyse a potential investment? How does your process help them make informed decisions?
RI: Banks and VCs will have different requirements compared to traditional mutual funds as they will have considerable exposure to private companies. ESGDS’ platform allows private companies to submit their ESG data along with the evidence. Investors can generate ESG assessment reports for their portfolios using our platforms and models. Our solutions also help banks in estimating their portfolio’s carbon emissions using the PCAF framework.
ET: What sets ESGDS apart from other ESG solution providers?
RI: ESGDS is the only solution provider helping the BFSI sector with a comprehensive and customisable platform that can automate ESG assessments and regulatory reporting requirements. While most of the other providers only give tools to use their assessments, ESGDS helps institutions build assessments and integrate the results into their core systems. We have a large team of research and technology experts who help investors scale up their coverage and help them embed ESG in their investment framework. Having a single team of technology and domain experts allows us to support various investor use cases.
ET: What are your plans for ESGDS? Are there any new technologies or areas of focus you are exploring?
RI: Globally, ESG is becoming more mainstream with regulations that stipulate an increase in disclosures and a mandate to have these disclosures assured by a third party. Regulators are also asking banks and investors like asset managers & PE to embed ESG risk in their decision-making process and this, in turn, will require financial institutions to build or buy ESG risk and analytics platforms.
Our platforms support multiple use cases and provide out-of-the-box solutions. Our no-code SaaS platforms focused on the ESG domain are receiving a lot of interest globally. Our SaaS platform is comprehensive, and easy to customise, allowing integration with risk models, AI-ML powered data curation and APIs that can seamlessly integrate with enterprise systems. Our focus is to help Indian banks enhance their ESG risk assessment practices and do that by using AI, large language models (LLMs) and easy-to-build dashboards.
