CRISIL’s ESG scoring
methodology
November 2023
Research
CRISIL’s ESG risk assessment methodology
CRISIL’s ESG scores are designed to support financial institutions and corporates to measure and monitor inherent
ESG risks across their financial exposures – both equity and debt. They also provide standardised and sanitised
ESG information that can easily integrate into analysis and risk management processes.
We have used our proprietary ESG methodology of assessing 600+ KPIs to score 1,000 companies across ~65
sectors. This evaluation is based on publicly available information released by the companies through their
websites, exchange filings, annual reports, investor presentations, sustainability reports, etc. It also factors in other
material ESG information available in the public domain through reliable sources, such as data reported by industry
associations, regulators and various government agencies. The assessment is based on quantitative as well as
qualitative disclosures.
Since this is an objective evaluation based on publicly available information, the quality of disclosures provided in
the public domain is an important determinant of the ESG score, hence CRISIL also provides a Disclosure score
category across companies we score. This becomes imperative for financial institutions and corporates to
understand the level of transparency in terms of reporting non-financial disclosures.
We strongly recommend and encourage all companies under our coverage to report maximum possible ESG-
related information in the public domain. This is in sync with good governance principles and best practices around
transparency – an important pillar of our ESG assessments.
Each company under our coverage is monitored on a continuous surveillance basis for ESG material events that
could potentially lead to a change in scores.
Scoring framework
To arrive at the overall company ESG score, relevant weights are assigned to E (35%), S (25%) and G (40%)
attributes, to reflect the relative importance of factors. Governance has been assigned the highest weightage as we
believe that good governance practices are the bed rock to drive environment and social agenda of any company.
Companies are scored on a scale of 0-100, where 100 is the highest.
In case of Environment and Social assessments, the final score is a combination of the company and the sector
scores, where sector scores have a 40% weight in the company’s E score and 25% in its S score. The company E
score assesses its material environment parameters in relation to its peers within the sector. The sector E score is
an indicator of how the sector fares relative to other sectors on various environment issues. This approach allows
us the flexibility to bring nuanced sector-specific parameters into our assessment, while at the same time retaining
the cross-sector comparability of the final scores.
Given India’s Net Zero target of 2070, many Indian companies have aligned their sustainability strategies to help
achieve this target. Transition or Parivartan parameters especially such as climate change policy, net zero targets,
trend in emission intensity, use of green/alternate raw materials, green product offerings, investments etc. are
embedded within CRISIL’s evaluation framework to assess the change in quantitative and qualitative metrics
toward achieving these sustainability goals. Hence, CRISIL has not provided a separate transition score for fiscal
2022 evaluations.
Enhancing the ESG evaluation framework
In the assessment of companies for the fiscal year ending 2022, CRISIL has enhanced ESG assessment
framework- The parameters assessed for fiscal year ended 2022 on environment category increased from 35 to 65
which includes sector specific parameters that are material to the industry, that for social category increased from
40 to 100 including the BRSR linked parameters such as worker related parameters, complaints from various
stakeholders, data security related issues, etc., and from 60 to 100 for corporate governance category, compared to
fiscal year ended 2021. This includes using more digitized approach of scoring, the incorporation of sector-specific
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data points for more comprehensive evaluation, & integration of BRSR parameters to refine scoring, and the
development of a digitized controversy framework to apply a deflator to company scores.
Company assessment framework
Environmental Sector score Company score ‘E’ score 35%
40% 60%
Social Sector score Company score ‘S’ score 25% ESG score**
25% 75%
No sector scoring for
Governance governance since it is Company score ‘G’ score 40%
comparable across sectors
100%
** On a scale of 0-100, with 100 being the highest and 0 the lowest
CRISIL evaluation framework comprises of 275 assessment parameters and 500+ data
points across E, S and G
Environmental profile Social profile Corporate governance
• GHG emissions • Employee and worker • Board composition,
• Energy use management independence and functioning
• Waste management • Stakeholder management and • Management track record
product quality • Shareholder relations
• Water management
• Communities • Disclosures practices
• Resource use, green products
& biodiversity
35 40 60
Fiscal 2022
framework
65 100 110
Note: The framework has been enhanced with an increase in the number of parameters assessed in fiscal 2022.
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Environment benchmarking across 5 key pillars
GHG emissions
Intensity of Co2 emissions (Scope 1 and 2)
Intensity of Scope 3 emissions and categories disclosed
Trend in emissions
Climate change policy, physical and transition risk Energy use
Intensity of air pollutants (Sox, Nox, SPM, ODS) emissions
Share of renewables in energy use
Capital investment on energy conservation
equipment
Energy consumption
Waste management
Trend in reduction in energy consumption
Hazardous waste management
Non-hazardous waste management
Generation and disposal methods
Recycling, reusing and other recovery Water management
methods
Water reused or conserved
Water withdrawal by type (fresh, ground, saline, etc.)
Resource use, green products and Water withdrawn from stressed areas
Water discharge
biodiversity STP/ETP treatment, ZLD
Environmental consideration in supply chain
Raw material use efficiency
Sustainable/green products/services in portfolio
Presence of IUCN protected species near place of operations
Land/plants with biodiversity management plan
Environment impact assessment
Social evaluation on material aspects
Employee and worker management
• Share of permanent workforce
• Gender diversity
• Talent retention/policies (attrition rate)
• Diversity, inclusion, well-being and human rights
• Lost time injury frequency rate - LTIFR
• Training to employees on skill and safety Stakeholder management and product quality
• Working condition + health and safety complaints
• Sexual harassment and redressal rate
• Sexual harassment - redressal rate Vendor management
• Wage equality Social consideration in supply chain
• Extent of unionisation Stakeholder complaints rate and redressal
Net promoter score / CSI / feedback
Data security
% R&D spend per sector-specific metric
Communities Product safety and quality
Ease of access - Network reach (no of
branches/outlets etc.); technology reach
• Taxes paid (direct + indirect)
• Regulatory CSR spend
• Employment generated (current year)
• Mechanism for grievance redressal of
local community
• Social impact assessments (SIA) of
projects undertaken by the entity
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In-depth governance evaluations
Board composition and functioning
• Integrity check - members being investigated
by any body, or associated with entities with
adverse news on corporate governance • Committee meetings and attendance record
• Total no of Board members - composition • Frequency and number of Board meetings
• No of women Board members - gender • Formal interaction between independent
diversity directors without other directors or senior
• Share of independent directors on the board
management
• Composition of committees (audit, risk,
nomination and remuneration, etc.)
Board composition Board and director independence Board functioning
• Board skill matrix
• Chairman and CEO positions split
• Presence of lead independent director
• Degree of independence - background;
association with the firm, ad-hoc exit of
independent director, with rationale, etc.
• Experience and tenure of directors
• Third-party evaluation of Board
Management track record, transparency & Shareholder rights
• Disclosure of cross-holdings, directors and
• Company management track record (operating
executive and indirect shareholding
/ revenue growth) [CAGR]
• No privileges or special rights available to any
• CEO salary growth (% CAGR) over past 3 years
class of shareholders
• Related party transactions
• investor grievance cell/investor grievance
• CEO tenure
committee.
• No of boards served on by the CEO in past year
• Disclosure of no of complaints received, resolved,
• Shares pledged by promoter
and outstanding, with average time for resolution
• Remuneration of key executives
• Clearly articulated dividend and payout policy
Management track record
Disclosure and financial statements Shareholder rights
and control
• Financial and trend, investor PPTs, annual
reports, concall transcripts, segmental data, MDA
for past 5 years on website
• Independent evaluation
• Subscription or endorsement of ESG principles
• BRR/ BRSR implementation
• Disclosure of remuneration of board members
and key executives
• Effective functioning of auditors – tenure, audit
observations
Factoring in sector-specific nuances and materiality
The ESG risk assessment framework for each sector includes sector-specific parameters that have been developed
based on our multi-decade experience in industry research as well as global reporting frameworks such as
Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), etc. For a parameter to be
considered material, CRISIL applies filters both from a risk perspective (how it may negatively impact a company’s
financial risk and return profile) as well as an impact perspective (how the issue may impact the country’s ESG
landscape). Weightages of individual parameters vary across sectors, depending on the materiality and relevance.
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CRISIL leverages its sector expertise in ESG evaluation, including sector-specific
parameters for evaluation.
Cement Airlines
• Share of sustainable aviation fuel in overall fuel mix
• Thermal substitution rate • Initiatives to use materials to make airplanes lighter
• Clinker ratio • On-time performance
• Percentage of passengers affected due to denial of
• Waste heat recovery system
boarding and cancellation
• PAT regulations (Perform, achieve and trade) • Safety rating by independent authority
• Aviation accidents/ incidents reports
Banks/ NBFCs Pharmaceuticals
• Financed emissions and negative sector exposure • Product recalls
• Adverse regulatory actions (number of warning
• Funding to green projects letters and import alerts)
• Rural and semi-urban reach • Number of Abbreviated New Drug Application
(ANDAs) filed
• Priority sector lending • Access to affordable healthcare
Handling non-availability or non-disclosure of quantitative information
Non-disclosure of quantitative information by a company for a specific parameter is assigned a default non-
disclosure score, which is the lowest score possible for any parameter. In case there is some qualitative disclosure
or material information available, CRISIL will notch up the score for that parameter depending on the specificity,
level of depth, and action-oriented nature of the information.
Deflators for compliance lapse, regulatory actions, controversies, or similar events
A deflator is assigned to the overall E, S or G company score, where the company has been involved in any
controversies, or there have been any compliances lapses or regulatory actions against it. CRISIL takes into
consideration if there is any regulator involved, the negative impact of the controversy, impact of the incident
leading to shut down of operations of the company, the amount of penalty levied by the regulator as a percentage
of profit after tax (PAT) or Net Worth, repeated occurrence of the incident, etc. Instances of deflator on environment
would include companies being fined by the pollution control board, national green tribunal, coastal regulation
zones, etc for non-compliance. On S would include safety incidents, child labour issues, worker strikes, community
protests, sale of sin goods etc. Governance deflators would be a function of any insider trading instances,
regulatory fines or investigations, regulatory actions on promoters or directors etc.
Handling Defence sector
Lack of disclosures by companies operating in this space on revenue share of defence related products or exports
to conflict prone nations limits our ability to assess the extent of impact on communities or society. Plus, we take
into consideration the importance of defence products/ services in lieu of national security and do not assign
deflators for companies in the sector.
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• Pollution control boards, National
Green Tribunal and other
E regulatory notices and penalties
• Issues brought up by
the community
• Sale of sin goods
• Worker protests
S • Community protests
• Child labour issues
• Safety-related incidents
• Regulatory actions or
investigations on promoters,
directors or company
G
• Fraud by employees/ promoters
• Legal battle between promoters
Handling unique corporate structures
Diversified companies:
Companies, which are present in more than two business segments, with at least two of the segments contributing
more than 20% of the total revenue, are classified in the Diversified segment.
The CRISIL ESG evaluation of such companies is based on a ‘Sum-of-the-parts’ approach, considering the
underlying companies/businesses they have exposure to, where weights are assigned in proportion to their asset
base.
The corporate governance pillar is evaluated at a company level on a consolidated basis, while the environment
and social pillars are evaluated in two ways:
• When the company’s non-financial disclosures are bifurcated into business segments/subsidiaries:
– The subsidiaries/business segments are scored separately, benchmarking them against the respective
sector peers
– The overall environment and social score are the weighted average of respective environment and social
scores arrived for the business segments/subsidiaries
• When the company’s non-financial disclosures are not bifurcated into business segments/subsidiaries:
– The environmental and social pillars are evaluated at a company level on a consolidated basis
– The overall sector score are the weighted average of respective environment and social sector scores for
the business segments
Holding companies:
Our holding company classification is based on RBI’s guidelines of core investment companies (CIC), where all the
CIC that fall under our coverage are classified as holding.
The corporate governance pillar is evaluated at a company level on a consolidated basis. The environmental and
social pillars of the holding companies are evaluated in two ways:
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• When the holding company has made non-financial disclosures:
– If such disclosures accounts for majority of the underlying business, we score the environmental and social
pillar, benchmarking them against the respective sector peers
• When the holding company has not made non-financial disclosures, we follow the ‘Sum-of-the-parts’ approach
based on the share of amount invested by the holding company in the investee companies:
– If the share of investment in the investee company is more than 10%, we evaluate the environmental and
social pillar of the investee company against its respective peers
– If the share of investment in the investee company is less than 10%, and the company has not been
evaluated in our coverage universe, we use the average environmental and social scores of the sector
• DFIs: Since DFIs are government organisations and mandated by certain government legislations in terms of
appointment of independent directors, we have considered government-nominee directors as independent
directors in arriving at the governance scores. Most DFIs are not encouraged to appoint non-government-linked
directors.
Output
The output of our scoring is a rationale report on each company which details the underlying reasons for the scores.
It shows where the company leads or lags on certain parameters vis-à-vis its peers in the sector and gives insights
on potential areas for improvement.
The ESG scores, along with the detailed rationale report, underlying data reported by the company, and
benchmarks is available through CRISIL’s online data and analytics platform, Quantix.
Why CRISIL’s ESG risk assessment framework is unique.
• Considers Indian specificities: CRISIL’s ESG framework has been thoughtfully designed contextualising
India-specific nuances, including regulations, availability of information, and materiality of issues. The
framework compares companies with their domestic peers; hence, the benchmarks and scale are India-specific
in nature. Global benchmarks and best practices are tracked, but only as a guide to indicate the potential to
improve from the current levels.
• Uses relevant third-party data sources: A significant number of ESG material data points are available
through third-party sources but not necessarily reported by the company. We look for and weave them into our
assessment framework. For instance, in case of the pharma sector, we look at information available through the
United States Food and Drug Administration website for warning letters, import alerts, etc.
• Assesses reporting boundaries: In India, it is common for companies to report E and S data for only a part of
their business operations. Hence, it becomes extremely critical to assess the reporting boundaries. In case the
company does not report information for 100% of its operations, we notch down the score on the basis of the
significance of the information reported.
• Faces a rigorous committee process: Given the substantial amount of subjective judgement required in ESG
analysis, CRISIL prides itself on the in-house sectoral capabilities and rich databases we have collected over
decades of research on Indian companies and sectors. To aid our assessment, every company goes through a
rigorous committee process where sector leaders from the Industry Research team help strengthen the
analysis, sector frameworks and parameters, and give additional insights based on their understanding of the
companies/sectors.
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Limitations of our framework
• Disclosure bias: The ESG scores are based on publicly available information only. Therefore, they are subject
to disclosure bias, i.e., companies that have better disclosures will potentially get higher scores as opposed to
companies with no/poor disclosures, irrespective of their actual impact on E, S and G parameters. We do not
work with any ESG information shared by companies on a bilateral basis. In order to uphold one of the key
governance pillars of transparency for all stakeholders, we encourage companies to improve their public
disclosures on ESG, which is also in line with SEBI’s approach of implementing the BRSR.
• Listed company bias: Listed companies are mandated by regulations to disclose more information in the
public domain, especially for governance related parameters. This could result in unlisted companies receiving
lower scores owing to limited disclosures. We expect unlisted companies to follow best practices when it comes
to governance and disclosures. Within listed companies, we recognise that large-cap companies tend to get
higher scores as they have access to more resources to both, make better disclosures and perform better. We
expect the BRSR to resolve some of the disclosure-related limitations with regard to smaller companies.
• Coverage bias: Our ESG benchmarks are a function of the number of companies covered in a particular sector
and the quality and quantity of disclosures within the sector. Hence, a material change in the coverage or the
disclosure of ESG information within a sector can lead to a deviation in scores on a year-on-year basis.
However, over a period, as the coverage increases significantly and companies improve their disclosures, this
bias is expected to fade. Companies are chosen mainly based on, but not limited to, three factors: market cap,
occurrence in mutual funds, and debt issued.
• Further, we will continue to fine-tune our approach and methodology keeping in mind availability of data as well
as global best practices in the dynamic field of ESG.
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