By Rishika Ranga, Senior Associate, Energy Policy and Regulations Group, Center for Study of Science, Technology and Policy
Every March, the Power Finance Corporation releases the Annual Integrated Rating of Power Distribution Utilities, a report that has evolved into one of the most important assessments of India’s power distribution companies (discoms). The rating framework originated in 2012 to create standardised mechanisms for evaluating discom performance and supporting risk evaluations associated with bank lending. Although the rating system is described as “integrated”, it is heavily weighted towards financial and operational metrics. On a 100-point scale, 75 points are allocated to financial parameters. The remaining 25 points reflect operational indicators such as distribution losses, billing efficiencies and collection efficiencies. Undoubtedly, given that discom finances are a crucial reality impacting the power sector, these are important metrics. As India prepares for a just and sustainable energy transition, discom performance must also be assessed through a broader lens. Environmental, social and governance (ESG) reporting offers a ready framework for evaluating and ranking discoms in ways that reflect their roles in India’s climate journey. It would also align discom reporting standards with accepted national and international frameworks, allowing access to climate-linked finance.
ESG: A hybrid credit rating performance
ESG has its roots in the management and financial toolkits of the 1970s, when companies came under pressure to adopt more sustainable and ethical practices. The framework provides a structured way for companies to report their performance in three areas: environmental sustainability (emission reductions, etc.), social responsibility (fair and safe workplaces, employee well-being, contributions to communities, etc.), and corporate governance (gender representation, transparency, etc.). Today, ESG reporting is increasingly being adopted in the power sector as well. In 2021, the Securities and Exchange Board of India mandated the Business Responsibility and Sustainability Reporting (BRSR) framework for the top 1,000 listed companies. The BRSR requires detailed qualitative and quantitative disclosures across ESG indicators. Many listed power companies, including Torrent Power, Adani Power and the Calcutta Electric Supply Corporation, publish sustainability reports. More recently, the Gujarat Electricity Regulatory Commission directed state discoms to undertake ESG reporting.
Relevance for discoms
Discoms sit at the centre of India’s decarbonisation goals. They make critical decisions on power procurement, renewable energy adoption and demand-side efficiency. Yet, measures taken by them to actively contribute to environmental and social goals receive little recognition within current performance ratings. In this case, integrating ESG into discom performance assessment is expected to offer several opportunities. First, it allows discoms to report on ongoing initiatives that meaningfully impact the environment and the community. Currently, many such initiatives are under-reported. For example, Bengaluru Electricity Supply Company Limited introduced 24×7 dedicated helplines for consumers to raise complaints; in Chhattisgarh, tribal women were employed as meter readers in rural areas. Second, sustainable finance or climate-linked finance has expanded rapidly in recent years. Green bonds, sustainability-linked loans, and transition finance instruments are directing capital towards clean energy measures. Financial institutions are embedding ESG considerations into such lending and investment decisions. The Reserve Bank of India issued directions enabling commercial banks to provide low-cost financing towards green activities and projects. Finally, ESG reporting can help reduce the reporting fragmentation by consolidating sustainability-related disclosures that discoms currently submit to regulators. They already collect much of the data required to publish an ESG report, and for the remaining indicators, data collection can be done in a phased manner.
Moving towards an integrated rating
While the ESG framework has come under the microscope for prioritising disclosures over real-world impact, it nevertheless offers a broader lens than traditional assessments for evaluating discoms. As India accelerates its energy transition, discom performance assessments must move beyond balance sheets and billing efficiencies. A discom rating framework should reward the companies not only for reducing costs and improving financial indicators but also for innovating and piloting solutions that advance decarbonisation, resilience and equitable service delivery. At the same time, any ESG-based assessment must avoid becoming a box-ticking exercise and should be linked to measurable outcomes. The future of electricity distribution will be shaped not only by financial viability but also by sustainability, resilience and social value. India’s discom ratings should reflect that reality.