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DIVERSITY PERSPECTIVES: “India remains well behind other markets that have targeted at least women representation at 30% of board composition”.

March 4, 2020

Ms. Hetal Dalal is the Chief Operating Officer of Institutional Investor Advisory Services India Limited (IiAS), a SEBI-registered India-based proxy advisory firm. Her role includes voting recommendations published annually by IiAS on over 800 listed companies that aggregate over 95% of the total market capitalisation on Indian exchanges. Also, the oversight of the governance research published under IiAS’ that enhances market participants’ understanding of best practices. Hetal leads IiAS’ efforts in working with International Finance Corporation (IFC) and BSE Limited on the Indian Corporate Governance Scorecard, which assesses Indian companies on their corporate governance practices. She provided oversight to the ESG assessment framework developed by IiAS: IiAS is the first domestic agency to have created such an assessment framework.   

Hetal is a Chartered Accountant and holds a management degree with a specialisation in finance from NMIMS Mumbai. It was my pleasure speaking to her on a host of subjects including Women on Boards; Corporate Governance; Fiduciary responsibility; ESG and Sustainability.

Praveen Gupta (PG): Your last report Corporate India: Women on Boards was truly pathbreaking. How has been the real progress since then?

Hetal Dalal (HD): There has been a lot of progress since our 2017 report on Women on Boards. There are a greater number of women on boards and an increase in the number of directorships being held by women. Almost 45% of NIFTY 500 companies now have two or more women on their boards and there are three companies that have five women on their boards. From an overall board composition perspective, 27% of the NIFTY 500 boards have women that comprise over 20% of the board, up from 11% on 31 March 2017.

Almost 45% of NIFTY 500 companies now have two or more women on their boards and there are three companies that have five women on their boards.

The regulatory change requiring the top 500 companies to have at least one woman director has had limited incremental impact – at the time of our 2017 report, 69% of the NIFTY 500 companies already had one Independent Woman Director – on 30 November 2019, 91% of the companies have at least one woman director. Despite the improvement, India remains well behind other markets that have targeted at least women representation at 30% of board composition.

PG: ‘The plethora of well-meaning men and organisations that have sprung up to “mentor” and “train” potential women directors are more patriarchal than progressive in their prescriptions, reflecting a poor understanding of what inclusion is really about’. Any thoughts on this observation by Ms. Rama Bijapurkar?

HD: I tend to agree with all the arguments that Ms. Bijapurkar has made in her article. The quota for women is being brought to correct a generational or a systemic defect – but that does not take away the argument of meritocracy. Sure, having training is important – and even companies are required to conduct ‘familiarisation’ programmes for its directors. But, one can neither be effective nor command the respect of peers because one has simply undergone a training programme. For all directors – not just women – having their own mettle is important.

PG: While pressure is growing on fund managers to pay greater attention to environmental and social is­sues, is there a realisation that ESG and impact investing can generate strong financial returns as well? According to Bloomberg – nine of the biggest ESG mutual funds in the U.S. outperformed the Standard & Poor’s 500 Index last year, and seven of them beat their market benchmarks over the past five years.

HD: Several domestic funds are now focused on ESG. We believe the asset managers are clearly seeing the value of ESG, and in several instances also being compelled by their own investors / unit holders, to focus on ESG.  With stewardship codes now becoming mandatory for almost all asset classes, it will propel the focus on ESG factors. While this is still relatively new for Indian markets, we believe the pace at which ESG will become a centre stage conversation will be quick.

We believe the pace at which ESG will become a centre stage conversation will be quick.

PG: Some asset managers believe that not considering ESG exposes legacy investors to uncompensated risks and may even constitute a breach of fiduciary duty?

HD: Although most of the ESG tracking seems to be in chase of long-term returns and attracting capital, there is a coterie of asset managers that believe ESG factors do expose investors to uncompensated risks. There have been ESG failures that have resulted in sharp deterioration in market capitalisation resulting in losses for investors. At the same time, there is a need for investors to be more discerning around how to proactively factor in ESG – for a large part, investors (and the market) is reactionary. Even so, I don’t think asset managers in India consider this to the extent of interpreting it as a failure of fiduciary responsibility.

PG: Do you think Climate Change is becoming an important agenda for enlightened Indian boards? Measuring Sustainability Disclosure: Ranking the World’s Stock Exchanges 2019, both Bombay Stock Exchange and National Stock Exchange of India rank 37th worldwide. How do we move up?

HD: 38 of the NIFTY 100 companies are signatories to CDP Worldwide (Carbon Disclosure Project), which shows that climate change is a focus for corporate India. However, only in 9 companies have the sustainability objectives been embedded on executive directors’ performance goals. One could conclude therefore that while climate change is being addressed through business, the focus on this at board levels is still limited.

The increasing issuances of green bonds is also testimony to the fact that not just companies, but investors too are showing an increased focus on sustainability.

The Indian exchanges consider their dominant role to be one of providing a platform for exchange. They do not pursue an agenda, believing that this may compromise their position as an unbiased market fiduciary. Therefore, the first step will be for exchanges (and perhaps the regulators) to redefine their role as influencers of Indian markets.

While climate change is being addressed through business, the focus on this at board levels is still limited.

PG: Indian Corporate Governance Scorecard framework developed by you jointly with the International Finance Corporation and the BSE – to what extent can it facilitate underwriting management liability exposures of individual corporates rated here?

HD: Our research shows that companies that score well on the CG Scorecard (score of 60 and above) have outperformance the index over a two-year period. Their stock beta (volatility) also tends to be lower than companies that do not score well on the CG scorecard. Clearly, equity markets seem to attach a premium to governance quality. Similarly, from a liability perspective, it can be interpreted that companies with a good governance score, in effect, are likely to have a lower probability of governance failures.

PG: Many thanks, Ms. Dalal. Truly appreciate these wonderful insights. My best wishes for all your endeavours.

Translation in simplified Chinese by InsConsulting Team:

https://mp.weixin.qq.com/s/6uXmyUMKVI6zRfanCYWKcQ

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