Governance scores highest but fails to significantly sway outcomes, finds Ind-Ra

Despite increasing global and regulatory emphasis on Environmental, Social and Governance (ESG) integration, ESG considerations remain largely immaterial in shaping credit rating outcomes in India, according to India Ratings and Research (Ind-Ra)’s mid-year review.

In the first half of 2025 (H1 2025), Ind-Ra analysed 184 issuers and found that governance-related issues were the most cited among ESG pillars but still influenced ratings in only four cases. Environmental factors were found relevant in just two instances, while social concerns did not figure in any of the assessments.

This reveals a continuation of a pattern seen in previous cycles, where traditional financial risk indicators overwhelmingly dictate rating decisions in the domestic market.

Governance risks typically emerging from management changes, regulatory scrutiny or corporate actions were the only ESG component to have had any measurable impact. Yet, even in those instances, the influence remained limited. Ind-Ra did not record a single issuer for whom ESG considerations decisively altered the rating outcome.

“The data shows that while governance concerns are beginning to register, they are yet to become rating drivers,” said an Ind-Ra spokesperson. “Environmental and social factors remain peripheral in credit analysis, often due to limited disclosure or sectoral inertia.”

Environmental risks often relevant in sectors with high regulatory exposure like energy, mining or chemicals were noted in only two issuers. Social factors, including labour issues, community relations and inclusivity, were absent altogether, signalling a nascent understanding or low disclosure levels in this area.

Experts suggest this could shift in the coming quarters as ESG reporting norms in India evolve. The Securities and Exchange Board of India (SEBI) has already mandated Business Responsibility and Sustainability Reporting (BRSR) for the top 1,000 listed entities, a move aimed at improving transparency and comparability of ESG data.
“There is a time lag between regulatory push and market impact,” said Harshita Jain, ESG Consultant, South Asia, at SustainEdge. “As disclosures mature and sector-specific ESG risks become more quantifiable, rating agencies may be forced to recalibrate their frameworks.”

According to analysts, the credit market’s lukewarm ESG response may stem from a cautious approach driven by data inconsistencies, sectoral immaturity and limited market incentives.

“The current findings reflect more about the stage of ESG adoption than its future potential,” said Priyansh Dey, Lead Analyst, ESG and Risk, at FinSight Analytics. “Governance is a low-hanging fruit but for ESG to matter, environmental and social metrics must evolve into financially material indicators.”

For now, Ind-Ra’s report confirms that India’s credit landscape continues to be shaped by balance sheets and cash flows rather than carbon footprints or diversity metrics. Yet, with regulatory efforts gaining momentum and global investors sharpening their focus, this could well be the calm before the ESG storm.