cracking the conundrum

An investor and policy view to leverage standardization of environmental and social disclosure and reporting
An emerging group of investors, globally and in India, are looking beyond the customary financial returns, and integrating Environmental and Social (E&S) information in their investment decision making. The advent of these investors and their needs have been manifested in an increasing demand for greater disclosure and reporting of E&S information by businesses in India. However, E&S information currently is both limited and scattered. This background predicates the question: Can such investors, which are using E&S information and targeting India, find a standardized and reliable means to get this information and make investment decisions more effectively?

‘Cracking the Conundrum’ details how investors can converge to crack the key conundrum of standardization of E&S disclosure and reporting: ‘a standard will get accepted only if it has a large number of adopters, however adoption will only happen if a standard gets accepted’.

As per the latest estimates developed by cKinetics, these investors (referred to as Finance+ investors) represent Rs 3 trillion ($55 billion) in India, which is 1% of the world’s total responsible capital. In addition to this, Indian and Global banks are lending Rs 4.4 trillion ($80 billion) to sectors, in which E&S factors are considered.

The report makes the case that as standardization of E&S reporting occurs, investors that have adopted it will increasingly interact amongst themselves. Their Assets Under Management (AUM) is expected to grow from Rs3 trillion ($55 billion) presently to Rs5.5 trillion - Rs9.6 trillion ($100 billion - $175 billion) in 5 years and forecasted to be at Rs13.2 trillion - Rs17.3 trillion ($240 billion - $315 billion) in 10 years.

The present AUM of Rs 3 trillion is largely held with private equity providers like Social investors, E&S funds, SRI funds and DFIs. In addition, another Rs 4.4 trillion ($80 billion) of capital is being managed by Indian and Global Banks, using the E&S criteria. The table below depicts the capital management of these investors.

Investors already using E&S measures

For this select group of investors alone, a 3X increase in AUM is predicted within the next 5 years on adoption of Standardized E&S disclosure and reporting.

3X growth in AUM for Finance+ investors alone in the next 5 years

Indian E&S disclosure policy is presently amongst the most progressive globally: that will be a key driver

During the course of the analysis undertaken for the report, several groundbreaking voluntary and mandatory E&S disclosure and reporting requirements were announced and are presently making their way into the mainstream. Several progressive policy enactments made in this period, include, the National Voluntary Guidelines for Social Environmental and Economic Responsibilities of Business (NVG-SEE), the mandate by Securities and Exchange Board of India (SEBI) requiring the largest businesses to file an Annual Business Responsibility Report (ABRR), Guidelines on Sustainable Development and Corporate Governance for Central Public Sector Enterprises (CPSEs), and the work by the Institute of Chartered Accountants of India (ICAI) in developing a framework for sustainability reporting.

Indian E&S disclosure policies: progressive in the global landscape


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See related work and ongoing developments

The business case: quantifying the financial impact of E&S disclosure and reporting
In order to quantify the potential financial impact due to a change in E&S disclosure and reporting measures, a model has been developed to link the two. The model takes a two step approach in establishing the linkage:

Step 1: Identify linkage between the E&S disclosure and reporting measures of an investment opportunity (i.e. a business) and its financial attractiveness. The business level information has been aggregated to build a sector-level view on the linkage between E&S disclosure and reporting and financial attractiveness of the sector. 

Step 2: Predict the change of capital flow and AUM in different sectors on account of change in the E&S disclosure and reporting.

Based on the above appoach, capital has been modeled for the following sectors which are most impacted:
i) Business and consumer services
ii) Energy and related infrastructure and
iii) Industrial manufacturing and extractive enterprises 

It has be estimated that, should adoption of standardized E&S disclosure and reporting take place in the above sectors, the amount of capital being deployed by Finance+ investors would be at Rs 17.3 trillion ($315 billion) instead of at Rs 7.5 trillion ($136 billion) in the next 10 years.

Continuing developments in E&S disclosure
A prescriptive set of near-term recommendations also emerged from the interviews conducted to propagate standardized E&S disclosure and reporting, which are as follows:
1. Need for an ongoing engagement platform that will enable investors to converge
2. Requirement for a guidance document on how to deploy a standardized E&S approach and how to provide assurance Details on the projected path and the estimated size of each of the investor types are presented in Chapter 4 of the report.
3. Need to coordinate with policy and leverage existing institutional frameworks to undertake coordinated action.

This space continues to see active developments. In order to engage with some of the follow-up activities listed above, please drop an email to:


Related Works

Landscape of Environmental and Social Performance Disclosure and Reporting in India
This document lays out the landscape for Environmental and Social (E&S) performance disclosure and reporting in India. It informs Finance+ investors, policy makers and the multi-stakeholder led initiatives, on the complementarities and gaps that exist between them, if they were to seek a standardized E&S performance and disclosure framework. Unlike most reports that have been done on the subject of E&S performance and disclosure, which are from a business perspective, this document looks at the issue specifically from an investor point of view.

Download Summary Presentation

Download Complete Working Paper Document 
Working Group on Planning Institutional Engagement for Impact Disclosure
cKinetics in association with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the Impact Investing Policy Collaborative (IIPC) has convened an E&S Disclosure and Reporting working group under the Sustainable Business Leadership Forum (SBLF) to answer the following questions (albeit with an investor lens):
1. What are steps needed to coordinate actions between existing institutions to increase the prevalence of impact disclosure from businesses in India?
2.When, where, and how should these steps be undertaken to promote deployment of investment capital looking beyond a pure financial return?

The working group intends to examine the policy linkages necessary to advance disclosure of Environmental and Social (E&S) impact metrics and catalyze additional institutional participation. The work will align with the ongoing consultations of the IICA regarding the National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business (NVG-SEE).

Learn more details on the working group

Content of Cracking the Conundrum Report

1. Executive Summary
    1.1 Backdrop to this report, its objective and its findings
    1.2 An opportune time to explore standardization of E&S reporting
    1.3 The conundrum elaborated
    1.4 Finance+ investors can lead the movement to crack the conundrum
    1.5 Greater capital flows as a result of standardization of E&S reporting
    1.6 Projected path of evolution of a future investor ecosystem that adopts
            standardized E&S disclosure and reporting
    1.7 Continuing developments and roadmap for policy makers and investors
             to coordinate
2. Landscape of E&S disclosure and reporting in India
    2.1 Policy outlook toward standardized E&S disclosure and reporting
    2.2 Multi-stakeholder driven initiatives are also starting to gain traction in India
    2.3 Development Financial Institutions (DFI) and lender guidelines
3. Investor outlook toward standardization of E&S disclosure and reporting
    3.1 Reasons for investors to drive E&S disclosure and reporting
    3.2 Identifying the Finance+ Investors
    3.3 Can Investors converge to drive standardization?
4. Cracking the Conundrum
    4.1 Understanding the conundrum
    4.2 Finance+ investors hold the key to crack the conundrum in India
5. Identifying the common ground between investors and gaps to be addressed
    5.1 Common due diligence & investment monitoring strategies of
             Finance+ investors
    5.2 Challenges faced by Finance+ investors, investing in India
    5.3 Barriers to be addressed in order to exploit the E&S information
6. Action and coordination needed to Crack the Conundrum
    6.1 Finance+ Investors need to converge behind a Minimum Common
             Requirement (MCR)
    6.2 Businesses can adopt the MCR: gain operational efficiencies and attract
             capital at lower costs
    6.3 Institutional action required for cracking the conundrum
7. Impact: Increased capital flows on account of Cracking the Conundrum
    7.1 Present state
    7.2 Emergence of an ecosystem
    7.3 Adoption into the mainstream
    7.4 Future state
8. From present to future
    8.1 Near term actions envisaged
    8.2 Continuing developments

Annexure 1 : Acknowledgments
Annexure 2 : Breakdown of investors interviewed and surveyed
Annexure 3 : Model for quantifying financial impact of E&S (Linking KZ Index with Disclosure) 
Annexure 4 : Landscape of Global state driven E&S disclosure and reporting initiatives
Annexure 5 : Landscape of Global stock-exchange driven E&S disclosure and reporting initiatives
Annexure 6 : Mapping similarities and dissimilarities between NVG-SEE, GRI G3 and IRIS indicators

Figure 1-1: Understanding the conundrum: what comes first?
Figure 1-2: Role of Finance+ investors in Cracking the Conundrum
Figure 1-3: Three Stages of Cracking the Conundrum
Figure 1-4: AUM increase predicted on adoption of standardized E&S disclosure and reporting
Figure 1-5: Projected path of evolution of investor ecosystem
Figure 2-1: Framework for mapping ‘Progressive’ and ‘Safe’ policies
Figure 2-2: Comparison of Indian and global policies on disclosure and reporting
Figure 3-1: Drivers for investors to look at sustainable investment strategies
Figure 3-2: Drivers for Finance+ investors to use E&S parameters
Figure 3-3: Identifying Finance+ investors
Figure 3-4: Finance+ investor perspective on “when would E&S disclosure and reporting become standardized
Figure 4-1: Understanding the conundrum: what comes first?
Figure 4-2: How different stakeholders can be aligned to Crack the Conundrum
Figure 4-3: Finance+ investors can lead a domino effect of driving adoption of standardized E&S measures
Figure 4-4: Projected path of evolution of investor ecosystem
Figure 4-5: Increase in capital flow due to Cracking the Conundrum and convergence around standardized E&S disclosure
Figure 5-1: Challenges faced by Finance+ investors in India
Figure 6-1: Actions required by stakeholders to Crack the Conundrum
Figure 6-2: Common elements in investor needs
Figure 6-3: Benefits of Disclosure and reporting for Investors
Figure 6-4: Identifying businesses which can be early adopters of the CTC solution
Figure 6-5: Sector-wise prevalence of disclosure and reporting in listed Indian business
Figure 6-6: E&S disclosure and reporting and performance framework: benefits accruing to businesses
Figure 6-7: Benefits of disclosure and reporting for portfolio companies of investors
Figure 7-1: The impact of the CTC solution
Figure 7-2: Emergence of an ecosystem: coordinated action between different investor groups
Figure 7-3: Emergence of an ecosystem: 5 year forecast
Figure 7-4: Adoption into mainstream: interplay between mainstream investors and Finance+ investors
Figure 7-5: Adoption into the mainstream: 10 year capital forecast
Figure 8-1: Different institutions working on E&S disclosure in India

Table 1-A: Assets under Management of Finance+ investors, as in 2012
Table 2-A: Names of guidelines issued by different DFIs and lenders
Table 3-A: Drivers for integrating E&S tracking and disclosure and reporting by investors in their operations
Table 5-A: Commonalities in screening, due diligence and ongoing monitoring
Table 5-B: Challenges faced by Finance+ investors in India
Table 5-C: E&S information barriers from an investor perspective
Table 6-A: Common questions and indicators across which investors need information
Table 6-B: Early adopter business sectors
Table 7-A: Assets under management of Finance+ investors, as in 2012
Table 7-B: Finance+ capital: sectoral breakdown of AUM
Table 7-C: Benefits of increased coordination across investors

Report lead: cKinetics
cKinetics is cKinetics is a specialized Sustainability Advisory firm that provides end-to-end solutions for investors and businesses. The firm has offices in New Delhi, India and Palo Alto, California, United States.

The research is supported by the Rockefeller Foundation and in addition to finance+ investors, it engages key stakeholders such as the Indian Institute of Corporate Affairs (IICA).