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Nov 20, 2018

Indian firms must do more on sustainability disclosure

Board evaluation and cyber-security risk two more areas deemed lacking, finds FTI Consulting

Just half (51 percent) of the 100 largest companies in India provide sustainability reports that contain internationally recognized benchmarks such as Global Reporting Initiative standards, according to the latest India Disclosure Index from FTI Consulting. 

The reporting of ESG risks by Indian firms lags significantly behind the wider ASEAN region, adds FTI in a statement, where almost three quarters (74 percent) include internationally recognized benchmarking standards in sustainability reports. 

ESG risk disclosure is just one of three areas highlighted in the research, which uses publicly available information, including data from annual reports and corporate websites, to rank India’s 100 largest firms by market cap on 12 disclosure metrics. 

Independent board evaluation is another area where FTI says the country’s biggest companies have work to do: just 10 percent provide board evaluation via an independent third party – again lagging behind the wider ASEAN region, where the number climbs to 27 percent. 

The third area of improvement highlighted by FTI is cyber-security risk reporting, with 56 percent of India’s largest companies failing to provide any information on cyber-security or data-security risk. No comparison is made with ASEAN companies. 

Overall, FTI says the companies average a 6.3 out of 10 voluntary disclosure score. Last year, three firms scored 10 out of 10. This year just one company – Infosys – gets a perfect 10, while a further eight are named ‘corporate disclosure champions’ with scores of nine out of 10. 

‘Corporate disclosure quality is a good proxy for corporate governance in emerging markets,’ says Amrit Singh Deo, a managing director in the strategic communications segment at FTI Consulting, in a statement announcing the publication of the report. 

‘The fourth edition of the India Disclosure Index reflects regulatory changes and investor expectations on board governance, diversity, cyber-security and sustainability disclosures, and boards and management teams should actively engage with investors on these issues. Greater transparency and better corporate governance can set Indian companies apart from emerging market peers, which is imperative when companies are competing for global investments and capital.’

Aggregated by industry, telecoms companies come out on top, while FTI classifies four sectors as ‘weak performers’: natural resources/energy, auto/transport, industrials/manufacturing and cement/construction.

As well as the overall voluntary disclosure score, the report also presents a board quality score, with companies averaging 2.1 out of four, and a risk disclosure score, with India’s 100 largest companies averaging 3.5 out of a maximum score of five. 

While the data shows that in some areas, India’s largest boards are doing well – for example, 76 percent have split chairman and CEO roles, and independent directors make up at least half of the board for 82 percent of the surveyed firms – there is still room for improvement. Just 16 percent of companies provide specific information about their director’s specialist expertise, and almost a fifth (19 percent) remain all-male, with no female independent director on the board.

Garnet Roach

Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of subjects, from technology to...

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