Only nine of 272 issuers saw ESG factors influence credit ratings in 9M2025, with governance issues such as management strategy and financial transparency taking precedence

Governance continues to outweigh environmental and social considerations in determining credit outcomes for Indian companies, according to India Ratings and Research (Ind-Ra). The agency noted that while ESG-linked risks are increasingly discussed, their actual influence on credit ratings remains limited, with only nine out of 272 issuers reviewed in the first nine months of 2025 showing any material impact.

Ind-Ra found governance factors to be the most significant among the three ESG pillars, with seven entities carrying a ‘Relevant’ governance factor. These were linked to management strategy, group structure, governance structure, and financial transparency issues that either posed a minimal impact or were being actively managed. Management strategy emerged as the most frequent governance concern, driven by project delays, differences among promoter groups, and persistently weak financial performance. Group structure and related-party transactions were cited as relevant in two cases, while delays in financial disclosures underscored transparency-related risks.

Environmental factors, by contrast, were deemed minimally relevant across the sample, except for two entities where greenhouse gas emissions and air quality concerns directly affected margins and cash flows due to increased compliance costs. Ind-Ra observed that while regulatory and operational exposure to environmental risks is rising, these have yet to materially alter credit profiles for most issuers.

No entity was found to have a ‘Relevant’ social factor during the review period. The agency, however, acknowledged growing investor focus on data privacy, labour conditions, and consumer welfare, which could gain importance in the longer term as disclosure standards evolve.

Overall, ESG considerations have had a limited bearing on credit ratings so far, but Ind-Ra expects their significance to increase as India advances its sustainability commitments and net-zero goals. The report suggests that environmental compliance costs, social responsibility metrics, and governance quality could increasingly shape credit risk assessments over the medium term, reflecting the gradual integration of sustainability into financial analysis.