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Exploring Environmental, Social, and Governance (ESG) Score

Variations Across Industries
Akhin P.1*, Anil Kumar K.2
1
Part-time Research Scholar
Department of Commerce, Government College, Kodancheri, Kerala
2
Principal (Rtd.).
Pazhassiraja College, Pulpally, Wayanad, Kerala
*Email: [email protected]

Abstract
Sustainability reporting is the disclosure and presentation of Environmental, Social
and Governance (ESG) aspects in business. Environmental, Social, and Governance
(ESG) factors are increasingly important in today's business world as they are regarded
as critical indicators of a company's sustainability. All the stakeholders (investors,
shareholders, creditors, government and customers) have considered the ESG as a prime
factor for sustainable development. Most important measure of sustainability is ESG
score. The study aims to compare the ESG score of listed companies across seven major
industries. Seven major industries identified for this study were Fast Moving Consumer
Goods (FMCG), IT, Financial services, Automobile, Bank, pharma and Energy. ESG
scores published by CRISIL were taken for this study for the financial year 2021-22
which includes both overall ESG scores and the scores of each of its three specific
dimensions (environmental, social, and governance). Mean and standard deviations
were used for this study to analyse ESG scores. We find that IT sector had highest mean
and minimum variation in the overall ESG score. Among these seven industries,
Automobile sector emerged as the least sustainable sector based overall ESG and
followed by FMCG and Pharma. In the Environmental Score, we find that Banking
sector was the leader followed by IT and financial Services. Automobile is the least
sustainable sector based on Environmental score. In case of social aspect, more
sustainable sector was bank with highest mean of social score. The least sustainable
sector was automobile followed by FMCG and financial services based on mean of
social score. Based on governance scores, the IT sector was the most sustainable sector
with highest mean. Following the IT sector, the banking and financial services sectors
were also highly sustainable. The least sustainable sectors were energy and automobile.
Another finding of this that ESG scores are significantly different across seven
industries.

Keywords: ESG (Environmental Social & Governance), Sustainability, Sustainability

reporting
Introduction
Sustainability reporting is the disclosure and presentation of Environmental, Social
and Governance (ESG) aspects in business. Environmental, Social, and Governance
(ESG) factors are increasingly important in today's business world as they are regarded
as critical indicators of a company's sustainability. All the stakeholders (investors,
shareholders, creditors, government and customers) have considered the ESG as a prime
factor for sustainable development. Due to the pressure of international orgnisations
like UN, companies are more focused on sustainability reporting. Different methods

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and measures have been used by companies for reporting the sustainability. Most widely
used framework for sustainability reporting is GRI (Global Reporting Initiative).
Remaining frameworks are issued by Sustainability Accounting Standard Board,
Carbon Disclosure Project and TCFED.
In India, SEBI has introduced framework in the name of BRSR (Business
Responsibility and Sustainability Reporting) in 2021, this is the extension of previous
framework BRR (Business Responsibility Reporting). Starting from financial year
2021-22, the top thousand listed companies have the option to voluntarily submit the
BRSR (Business Responsibility and Sustainability Reporting). But in the financial year
2022-23 onwards, it will be mandatory for them to submit it. Companies’ Sustainability
reporting is based on three core areas (Environment, Social and Governance) of
business operations which impact not only the business itself but also society as a whole.
All the frameworks of sustainability reporting include both quantitative and qualitative
indicators of business. The main purposes of sustainability reporting are accountability,
transparency, and stakeholders’ engagement. Sector-wise analysis is very essential for
comparing across sectors.
ESG score is the best quantitative measure for Comparing the sustainability practices
of different industries. ESG scores have become an important measure for analysing a
company’ s sustainability practices, which have a direct impact on long-term value
creation. ESG scores have an impact on company’s goodwill and brand equity, as well
as influencing consumer perception and purchase decisions of consumers (Chatterji and
Toffel,2019). Consumers have favorable perception on companies with strong ESG
credentials. This will lead to brand loyalty and competitive advantage. ESG score shows
the company’s performance in addressing environmental impact, social responsibility,
and corporate governance issues, meeting the expectations of investors, consumers,
regulators, and employees. (Lins et al., 2017). Regulatory bodies around the world are
making sustainability reporting compulsorily for listed companies (Rasheed et al.,
2021).
The calculation of ESG scores are based on both qualitative analysis and quantitative
data (Khan et al.,2016). Combining the different qualitative variables presents
challenges in developing standardised methodologies for ESG evaluation (Luo &
Kanuri, 2020). Improving the data reliability and comparability are the main challenges
for researchers in the area of ESG (Environmental, social and governance). ESG score
has a positive correlation with stock return and profitability of a company (Dhailiwal et
al., 2014). But this relationship may vary across industries due to sector specific factors
(Bassen et al., 2019). Different industries have different concerns in the area of
environmental, social ang governance. The aim of this study is to compare the ESG
score across the seven major industry sectors.
Literature Review
Adhering to the prescribed ESG standards has become a prerequisite for accessing
capital market (Boesso & Kumar 2020). They also highlighted the ESG integration is
no longer a concern but has become central to banking operations. They also suggested
that banks are responding by embedding ESG factors into their strategic frameworks,
which influences decision-making processes and risk management strategies. Chatterji
and Toffel (2019) studied how companies react to being publicly rated by examining
the mechanisms through which these ratings influence firm actions, particularly in terms
of improving social and environmental performance. provide valuable insights into the
strategic responses of firms to external ratings, emphasizing the role of ratings as both
a motivator for improvement and a potential source of symbolic compliance.
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Clark et al (2020) make a compelling case that sustainability is not just a moral
imperative but also a financial one. Their study showed the importance of integrating
ESG factors into corporate and investment strategies to achieve long-term financial
outperformance. Dhaliwal, Li, Tsang, and Yang's (2014) investigated the relationship
between voluntary nonfinancial disclosure, particularly Corporate Social Responsibility
(CSR) reporting, and the cost of equity capital. They also provided the robust evidence
that voluntary nonfinancial disclosure, through the initiation of CSR reporting, can
lower a firm's cost of equity capital. This finding underscores the importance of
transparency and the strategic role of CSR activities in financial markets.
García-Sánchez et al (2021) showed the mediating role of CSR in linking
sustainability practices to financial outcomes, focusing on whether sustainable practices
directly impact a firm's financial performance or if this relationship is mediated by CSR
activities. Gond et al. (2019) studied the intricate relationships between management
control systems (MCS), environmental, social, and governance (ESG) objectives, and
dynamic capabilities in organizations. The paper provided a theoretical framework to
understand how MCS can be configured to balance the demands of contingencies and
ESG goals while fostering dynamic capabilities.
ESG Performance and Stock Returns: A Comparative Study of Emerging and
Developed Markets" by Grewal et al (2022): This paper showed the relationship
between Environmental, Social, and Governance (ESG) performance and stock returns
across emerging and developed markets. Main objective of this study was to compare
how ESG performance impacts stock returns in Emerging and Developed Markets. It
also highlighted the need for improved ESG reporting and standards in emerging
markets to enhance the reliability of ESG data. Khan et al (2016) titled Corporate
Sustainability: First Evidence on Materiality, provided evidence that the financial
market reacts more favourably to sustainability disclosures when they are material to
the firm's industry or operations. The main finding of this paper is that investors value
sustainability information relevant to the company's specific context. The study
concluded that materiality is a key factor in effective corporate sustainability reporting
and that focusing on material issues can lead to improved financial performance and
stakeholder communication.
The paper by Lee et al (2020) studied the relationship between corporate
sustainability performance and Environmental, Social, and Governance (ESG)
disclosure in Korea. The main finding of this study was that higher corporate
sustainability performance is positively associated with the quality of ESG disclosures.
Lins et al (2017) titled "Social Capital, Trust, and Firm Performance: The Value of
Corporate Social Responsibility During the Financial Crisis" investigated the impact of
corporate social responsibility (CSR) on firm performance during periods of financial
instability. The study focused on the relationship between CSR and firm performance,
particularly during the 2008 financial crisis. The study suggested that CSR can provide
firms with a competitive advantage during economic downturns by enhancing trust and
social capital. This can lead to better performance outcomes when compared to firms
that do not engage in CSR. The paper by Luo and Kanuri (2020) examined the role of
ESG (Environmental, Social, and Governance) ratings in predicting corporate social
responsibility (CSR) outcomes. Specifically, they analysed the MSCI ESG ratings and
their effectiveness in forecasting a company's CSR practices. The findings contributed
to the ongoing discussion about the role of ESG ratings in investment and corporate
governance.

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Methods
The study aims to compare the ESG score of listed companies across seven major
industries. Seven major industries identified for this study were Fast Moving Consumer
Goods (FMCG), IT, Financial services, Automobile, Bank, pharma and Energy. ESG
scores published by CRISIL were taken for this study for the financial year 2021-22
which includes both overall ESG scores and the scores of each of its three specific
dimensions (environmental, social, and governance). CRISIL (Credit Rating
Information Services of India Ltd) is an Indian credit rating agency and is also a
subsidiary of American company S & P Global. 315 companies were selected from
above mentioned industries. For calculating the ESG score of companies. CRISIL used
more than 600 Key Performance Indicators (KPI) of 1000 companies.
The calculation is based on publicly available information from company website,
SEBI, annual reports published by companies as well as ESG data from reliable sources
such as industry associations and government agencies. This includes both quantitative
and qualitative disclosures. To determine overall ESG score for a company, weights are
given to Environment (35%), Social (25%) and Governance (40%) attributes.
Governance has been assigned the highest weightage due to the assumption that good
governance practices is the cornerstone for environment and social agenda of any
company. ESG score published by CRISIL is in between 0 to 100. To know the best
sector among the seven sectors, statistical measures like mean and standard deviations
were used. In order to understand the significant associations between groups, one way
-ANOVA test was conducted.
Results
We analyse the ESG scores of companies from seven sectors. The following table
shows the number of companies under seven industries.
Table 1: Number of companies under seven Industries
Industry No of Companies
Pharma 62
FMCG 41
IT 48
Financial Services 32
Automobile 54
Bank 34
Energy 44
Total 315
Source: CRISIL
First, we analyse the overall ESG scores across industries. Mean and standard
deviations are the statistical measures used for this analysis.
Table 2: Overall ESG mean and standard deviation
Industry Overall ESG (Mean) Overall ESG (SD)
Pharma 52.30 6.67
FMCG 51.75 5.46
IT 71.52 4.70
Financial Services 53.71 6.72
Automobile 46.81 4.89
Bank 60.79 4.94
Energy 61.86 5.20
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The above table showed that IT sector had highest mean and minimum variation
in the overall ESG score. Among these seven industries, Automobile sector emerged as
the least sustainable sector based overall ESG and followed by FMCG and Pharma.
Apart from the overall ESG score, Individual ESG scores of three specific dimensions
of Environment, Social and Governance were also analysed. Table no 3 mentioned
about ESG score of Environment dimension.
Table 3: ESG mean and standard deviation of Environment Dimension
Industry Mean SD
Pharma 36.08 12.04
FMCG 38.53 8.05
IT 48.95 13.36
Financial Services 42.25 7.56
Automobile 30.76 8.55
Bank 54.82 5.94
Energy 32.94 10.44
Source: CRISIL
Based on Environment Score, Banking sector was the leader followed by IT and
financial Services. Automobile is the least sustainable sector based on Environment
score. Other less sustainable sectors were energy, Pharma and FMCG.
The next dimension of sustainability is the social aspect. The following table
showed the ESG score of social dimensions.
Table 4: ESG mean and standard deviation of Social Dimension
Industry Mean SD
Pharma 51.79 8.02
FMCG 43.84 8.30
IT 52.12 9.49
Financial Services 47.00 9.34
Automobile 38.42 7.63
Bank 54.02 4.78
Energy 49.61 11.45
Source: CRISIL
More sustainable sector was bank with highest mean of social score. Other
sustainable sectors were IT and Pharma after the banking sector. The least sustainable
sector was automobile followed by FMCG and financial services based on mean of
social score
The last aspect of ESG was Governance. The following table shows the governance
score of seven industries.
Table 5: Mean and Standard deviation of Governance Dimension
Industry Mean SD
Pharma 67.08 4.10
FMCG 68.30 4.54
IT 71.14 4.73
Financial Services 69.45 7.37
Automobile 66.32 3.68
Bank 69.97 7.62
Energy 63.58 2.95

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Source: CRISIL
Based on governance scores, the IT sector was the most sustainable sector with
highest mean. Following the IT sector, the banking and financial services sectors were
also highly sustainable. The least sustainable sectors were energy and automobile.
Impact of industry specific factors affecting the sustainability of different industries
(Bassen et al., 2019). So, it is relevant to test the significant difference across seven
industries. One way ANOVA is used to test the following hypothesis
H1: ESG scores are significantly different across the seven industries
Table 6: ANOVA
Source of SS DF MS F P-value
Variation

Between 20044.45 6 3340.741 107.1366 2.26E-72

Groups

Within Groups 9604.075 308 31.18206

Total 29648.52

The p-value is less than the significance level of .05, hence concluded that ESG
scores are significantly different across seven industries. Therefore, it can be inferred
that industry has a significant effect on ESG score.

Discussions
This study focuses on the impact of sustainability reporting across different
industries. ESG score is the best single measure to study the sustainability of companies.
Overall ESG score and specific scores of Environmental, Social and Governance were
used in this study. Mean and standard deviations were used for this study to analyse
ESG scores. IT sector had highest mean and minimum variation in the overall ESG
score. Among these seven industries, Automobile sector emerged as the least
sustainable sector based overall ESG and followed by FMCG and Pharma.
In the Environment Score, we find that Banking sector was the leader followed by
IT and financial Services. Automobile is the least sustainable sector based on
Environment score. Other less sustainable sectors were energy, Pharma and FMCG. In
case of social case, more sustainable sector was bank with highest mean of social score.
Other sustainable sectors were IT and Pharma after the banking sector. The least
sustainable sector was automobile followed by FMCG and financial services based on
mean of social score. Based on governance scores, the IT sector was the most
sustainable sector with highest mean. Following the IT sector, the banking and financial
services sectors were also highly sustainable. The least sustainable sectors were energy
and automobile. Another finding of this that ESG scores are significantly different
across seven industries.
Conclusion
This study contributes to an understanding of sustainability reporting of companies
and impact on different industries. 315 companies were selected from seven major
industries.IT sector has a highest ESG score under, Environment, Governance and
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overall ESG score. The least sustainable industries were automobile energy. Among
three dimensions of ESG, Governance had the highest score and Environment had the
Least score. ESG score significantly different across industries. Industry has an impact
on sustainability reporting. Companies should focus on Environment dimension of ESG
as the least Environment score. Automobile, Pharma and Energy companies should give
more importance to sustainability. All the companies irrespective of the sectors should
work more on sustainability because the average ESG score of the companies far from
100.

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