According to ESG data from Acuité Ratings, India's state-owned companies are lagging behind private companies in environmental, social and governance (ESG) scores. These ESG scores are one of the key criteria for fund allocation by global investors.

Out of Nifty 50 companies, 40 per cent of private sector companies are rated ESG 'risk A', compared to 14 per cent of public sector units (PSUs). Risk A indicates an ESG leader with a largely positive track record of managing material risks.

Whereas about 48 per cent of private sector companies and 86 per cent of public sector companies of Nifty are rated ESG risk BBB. An ESG rating of BBB indicates that the company has a good track record of risk management but no evidence of a robust framework.

Private sector companies score an average of 49 per cent on business ethics, whereas public sector companies score an average 48 per cent. Business ethics refer to a company's performance related to anti-corruption, fair competition, whistle-blower protection and compliance.

The report said that PSU's are well aware of the relevance and importance of ESG and sustainability. As of now, this is not impacting their cost of borrowing or capital availability, especially for the well-performing and profitable ones.

The study found that several large PSUs are active in oil and gas, mining, power generation and steel, also the highest carbon-intensive sectors. The report found that private sector companies score an average of 46 per cent on greenhouse gas (GHG) emissions. Similarly, the analysis showed that public sector companies score an average of 38 per cent in GHG emissions.

"We believe many PSUs, irrespective of their size, risk irrelevance, given their presence in challenged industries with a bleak future (fossil fuels) and challenging industries are seeing rapid transformation (financials). We doubt the companies are sufficiently geared to meet the challenges; continued government ownership may handicap them further. Anyway, we do not see much merit in sectors such as energy, financials and telecommunications being classified as strategic," the company had said in a statement.

The government had stated its intent to have a zero presence in non-strategic sectors and a minimum presence in identified strategic sectors. The four identified strategic sectors are atomic energy, space, and defence; transport and telecommunications; power, petroleum, coal, and other minerals; and banking, insurance, and financial services.

Image Courtesy: PSU Watch