ESG assessments for cities in India

December 2023

Environmental, Social, and Governance (ESG) is a framework used to assess the impact of an organisation on society and the sustainability of its investment across three central pillars. In the corporate sector, ESG assessments are a rapidly growing trend and investors now apply non-financial, sustainability and ethical considerations to drive investment decisions.

Globally, there is a momentum for reporting ESG in cities with the examples of Toronto rolling out a debt issuance programme linked to ESG outcomes, Vancouver adopting TCFD-recommended actions in its financial reporting and organizations like ISS Muni rating cities across the US bond market. Many countries are now adopting monitoring frameworks linked with ESG outcomes for reporting on sustainability.

There is an emerging market for ESG with municipalities in India as well. Rapid urbanisation, deteriorating environment and the state of municipal finances in India suggest that cities will need to reduce their dependence on grant funds and seek funds from the open market. In this scenario, ESG assessments become relevant to identify improvement opportunities and build credentials for attracting a diverse range of investors and link with a new source of capital that is focused on ESG outcomes and sustainability.

CWAS and PWC India have developed a framework for ESG assessment of cities. A range of national and international frameworks were reviewed to identify common themes for ESG in the context of Indian cities. This ESG framework includes indicators on global development goals and national commitments in addition to the municipal functions mandated for local governments.

Indian cities are already being assessed on various nationally agreed frameworks such as Service level Benchmarking, Ease of living Index, Swachh Survekshan, Good Governance Index, Municipal Performance Index, etc and a wealth of information is available in public domain. This framework makes use of these publicly available datasets.

Beyond financing, ESG assessment of cites is also a way for city governments to create awareness on how cities can respond to both existing government programmes and, through appropriate investment plans, mobilize additional funds to meet the ESG mandates. It is also an important mechanism for municipal governments to report back to citizens on how they are meeting the challenges of climate change, inclusion and development.