ESG rating overhaul needed to separate risk from opportunity: Aspire Impact’s Amit Bhatia

Amit Bhatia, founder Aspire Impact and Aspire Circle, quit his corporate career in 2007 to serve the social sector. Previously, he was founding CEO of WNS Knowledge Services (2003-2007) which listed on NYSE.

Social entrepreneur Amit Bhatia is pushing for a new approach to Environmental, Social, and Governance (ESG) ratings. Leveraging his experience in impact measurement and ESG, he advocates separating ESG into two categories — risk and opportunity — to provide more incisive analysis and better support for investor decision-making.

Bhatia set up Aspire Impact Ratings in 2020 as a social enterprise for impact measurement and certification. He founded Aspire Circle in 2007, a non-profit for impact fellowships and thought leadership. He is also an Independent Director at White Oak Capital AMC and the National Stock Exchange’s Social Stock Exchange.

ESG (Environmental, Social, and Governance) ratings measure a company’s performance in these three key areas, helping investors and stakeholders assess the sustainability, ethical impact, and long-term value of  the entity.

Globally, ESG assets crossed $30 trillion in 2022 and are slated to surpass $40 trillion by 2030, according to a Bloomberg Intelligence (BI) report earlier this year.

“Currently, using the same publicly available information, ratings providers are reaching diametrically opposite conclusions about a company's ESG performance. This is misleading the market. So we set out to build our own framework to fix that,” said Bhatia.

While the ESG rating industry is already crowded and the capital markets regulator, the Securities and Exchange Board of India (SEBI), is taking measures to streamline the sector, Bhatia believes there’s room for innovation. His new framework aims to address current gaps.

“We are planning to apply to SEBI for approval of our ESG ratings; the process typically takes six months,” he said.

The planned evaluation mechanism will give  separate  ESG risk opportunity ratings, as against a blended rating given by other agencies. It will also give equal weightage to industry-agnostic and industry-specific performance indicators. The framework is a result of collaboration by over 150 ESG, sustainability, and impact leaders from corporate India.

SEBI has taken several measures to streamline the sector, like introducing a framework for ESG ratings providers. In 2021, SEBI made it mandatory for the top 1,000 listed companies by market cap to release a  Business Responsibility and Sustainability Reporting (BRSR) from 2022-23.

Earlier this year, S&P Global said it would withdraw its ESG ratings services from India after SEBI detailed stricter guidelines. Industry buzz suggests other ESG rating companies too have partially withdrawn their offerings to comply with SEBI’s norms. But the space continues to see interest from new players like CRISIL ESG Ratings & Analytics Limited, which received SEBI approval for its services in April this year.

So why launch yet another rating service in an already-crowded market?

“Companies want to avoid misinterpretation of their ESG performance and disclosures. Impact ratings, which cover the impact of products and services on consumers, have a broader scope than ESG ratings, which focus on internal footprints. Impact ratings share more information and disclosures than what's required, to reduce the chances of being misjudged and penalised on the stock exchanges. Our ratings cover all aspects,” he said.

SEBI has prescribed a balanced regulatory framework for ESG disclosures, ratings, and investing, to mitigate greenwashing risks while facilitating easier compliance. The introduction of new approaches to ESG ratings, such as separating risk and opportunity, could contribute to aligning corporate practices with SEBI’s vision for greater transparency and accountability in the Indian market.