Two agencies can look at the same Indian company and reach opposite conclusions. That is not a malfunction. It follows from what an ESG rating actually measures.
Most ratings measure risk to the company
The common assumption is that a high ESG score means a company does less harm. Most major methodologies measure something different: how exposed the company is to environmental, social and governance factors that could damage its financial performance, and how well it manages that exposure.
That is why a tobacco company can score well. Its products harm people, which is not what the rating asks. The rating asks whether litigation, regulation and supply chain risk are managed, and a large tobacco company manages those carefully.
Disclosure gets rewarded
Ratings are built from what companies publish. A firm reporting extensively provides the data points a methodology needs. A firm that publishes little is marked down for absence, whatever its actual performance.
The systematic effect favours large companies with sustainability departments over smaller firms that may pollute less and say nothing about it.
The India-specific distortion
Global methodologies penalise features that are structural in Indian business rather than deficient: concentrated promoter shareholding, group company transactions, and family board representation.
Some of that is legitimate, because promoter control genuinely raises minority shareholder risk. Some of it simply scores a corporate form as though it were a failing. SEBI identified the absence of India-specific considerations as one reason to regulate rating providers.
What to check before relying on a score
- Is the provider registered with SEBI? Only registered providers may rate Indian entities.
- Who pays for the rating, the company or the subscriber?
- Is the score absolute or relative to sector peers? A relative score means best in a bad industry.
- How much weight sits on disclosure volume rather than measured outcomes?
Ratings from different providers are now published through the stock exchanges, which makes divergence visible. Where two providers disagree sharply, the disagreement is usually more informative than either score.
