Half of Indian Companies Considered “Risky” When It Comes to Sustainability Management

August 10, 2023 EcoVadis EN

Given the changing scenario, where the collective consciousness leans toward environment-first and socially-responsible businesses, and as India is plugging into global supply chains, are Indian companies rethinking what needs to be done in-house and across procurement? Most must act fast to be the supplier of choice and win in an increasingly green-oriented economy.

India’s first G20 Presidency presents a unique opportunity for the country to spearhead a collective effort to tackle multiple and complex challenges of the developing world. Prime Minister Narendra Modi envisions India’s G20 agenda to be “inclusive, ambitious, action-oriented, and decisive,” and to strengthen the Lifestyle for Environment (LiFE) initiative. Against this backdrop, India’s ambition is to become a net-zero emissions country by 2070. The country is on a fast track to boost the economy while combating climate change.

Within this context, the environmental crisis is now a near-universal business concern. That usually means decarbonization, as organizations are pushing for measurable topics and because buying into it makes economic sense. But the focus is widening to include social and governance considerations, such as employee welfare, worker safety and training, gender empowerment, and ethical management.

It makes sense because, increasingly, a company’s ESG actions can be a deal-breaker – what can determine their positioning is the speed at which they transform regarding sustainability.

To understand and see how proactive Indian companies are about pushing their corporate management in a way that has more impact, we assessed the environmental, labor, ethical and governance practices of roughly 1,900 companies between 2018 and 2022, a mix of small and medium-sized enterprises and large businesses.

On a scale of 0 to 100, the average score in India increased by 5.2 points since 2018, to 42.4 in 2022 – on par with the average of the Asia-Pacific region. In 2022, 54% of the country’s companies scored below the 45-point threshold, placing them in either Insufficient (0-25) or Partial (25-44) performance categories. Of the remaining companies, only 2% performed at an “Advanced” (65-84) level. The breakdown indicates that more than half of the companies in scope were rated either high- or medium-risk on sustainability factors. This shifts the conversation around ESG to a means of identifying and addressing risks, rather than capitalizing on opportunities, particularly when the topic turns to sustainable procurement.

Overall score evolution (2016-2022)

The overall scoring increase is supported by the spikes in the country’s averages for all EcoVadis’ assessment themes. Since 2018, the typical Indian company improved by more than 5 points on the Environment, Labor & Human Rights and Ethics criteria. The average Sustainable Procurement score in the country rose by 3.7 points since 2018. Most of that improvement (3.3) happened in the last year. The average theme scoring hinges on the results of SMEs, as they represent three-quarters of the total Indian companies within our network. In most respects, local SMEs tend to perform better and improve faster than their larger counterparts.

Indian scoring by EcoVadis assessment theme (2018-2022)

All sizes included, almost half of the companies (49%) were evaluated at least twice during the studied timeframe, allowing us to set two baselines for comparison: one for the companies assessed for the first time in 2022, and the other for those with at least two assessments in 2022. 

Companies with one assessment score significantly worse than those with two or more evaluations under their belts. The difference is most pronounced on the Environment (38.0 versus 50.6 points) and Sustainable Procurement themes (27.2 versus 38.4 points). The difference in the overall scoring amounts to 10.5 points, with the second group scoring 47.6 in 2022, on average. Of the group that had their first assessment last year, large companies scored particularly low.

Of the companies evaluated multiple times, we differentiated around 130 with one assessment in 2018 and one in 2022. Almost all companies performing at an Insufficient level and half of those with Partial scoring were able to improve enough to reach at least the next threshold five years later. Most companies that fell into the Good (45-64) category in 2018 remained on this level, with only a few diverging towards either lower or higher scores.

Progression of Indian companies rated in 2018 and again in 2022

Despite clear momentum, the current pace of change isn’t fast enough – it’s clear that most Indian companies within our network find pushing the sustainability agenda challenging.

Likely, unclear regulatory frameworks or lack of incentive schemes or support mechanisms are key factors holding back faster progression. Only 27% of Indian organizations feel adequately equipped to meet their sustainability strategy and compliance requirements, according to Deloitte’s India ESG preparedness study. Just 15% believe their suppliers are well-prepared to do so.

Companies with a global footprint should be better prepared, as they are part of international groups or governed by international standards that are considered more stringent. But there is a need for a broader ecosystem and policy environment to support businesses that don’t have such exposure. This can be done by implementing targeted measures to drive sustainability across supply chains. But our analysis suggests that relatively few companies in India work with their suppliers to strengthen their efforts.

On our scorecards, 37% of Indian companies rated in 2018 had “Insufficient” (0-25) Sustainable Procurement scores. 54% were evaluated as “Partial” (25-44) on this theme. After a five-year follow-up, the share of the companies in these two categories dropped to 78%, showing that more local organizations are likely to engage and prioritize sustainable procurement practices. This pushed the average theme score for this country from 29.2 in 2018 to 32.9 in 2022 – significantly up but still far off from what can be considered a global standard.

Distribution of Sustainable Procurement scores in India (2018 vs. 2022)

Sustainable procurement is becoming the next wave of good management, in the sense that it can decisively influence an organization’s ESG goals. Individual efforts can be amplified by businesses joining forces along the value chain. 

Locking arms with smaller companies that are part of a supply chain, to improve their corporate sustainability profile will be especially critical. While large companies in India already face some scrutiny, there is currently little to no pressure on the country’s SMEs to be ESG compliant. Their supply-chain partners are expected to exert pressure on them to do otherwise.

A measure-and-benchmark approach will allow businesses to improve to match or outperform the country’s norms or other players globally. EcoVadis has been examining sustainability performance for several years to outline the global and local trends to aspire to or get ahead of. Our Business Sustainability Index covers proprietary data sets for roughly 70,000 companies across different sizes and industries in countries worldwide to determine where some are and where others are capable of going.

Ready to benchmark and improve your sustainability performance? Get started here. Interested in leveraging EcoVadis Ratings to manage ESG compliance, build resilience and drive value-creation across your supply base? Learn more about our enterprise solution, or contact us for a demo or quote.

About the Author

EcoVadis EN

EcoVadis is a purpose-driven company whose mission is to provide the world's most trusted business sustainability ratings. Businesses of all sizes rely on EcoVadis’ expert intelligence and evidence-based ratings to manage risk and compliance, drive decarbonization, and improve the sustainability performance of their business and value chain. Its AI-powered risk mapping, actionable scorecards, benchmarks, carbon action tools, and insights guide a resilience and improvement journey for environmental, social and ethical practices across 200 industry categories and 175 countries.

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