‘Dirty’ Sector Fares Well On ESG

By Prosenjit Ghosh April 02, 2023

ESG frameworks are not here to judge and tag a company to be anti-ESG; these rather measure the steps taken by a company to confront the challenges in environmental, social and governance spaces

‘Dirty’ Sector Fares Well On ESG
ESG frameworks measure the steps taken by a company to confront the challenges in environmental, social and governance spaces.

Investment managers are often confounded with stocks from the so-called ‘anti-ESG’ or the ‘dirty’ sectors, which has led to a lot of disdain. Traditionally, alcohol, gambling and tobacco were considered ‘sin’ sectors. ESG investing has added other sectors such as petroleum, thermal power and the like, terming them as anti-ESG or ‘dirty’ sectors.

There are many companies which perform exceedingly well on the ESG front despite operating in these sectors. So, how correct is it to generalise the entire sectors as anti-ESG or ‘dirty’ sectors? Let us understand this better with data-backed analysis from 

Tobacco Manufacturing Sector

India is the second largest tobacco producer and the third largest tobacco exporter in the world. This sector is exposed to numerous challenges, including environmental risks, water intensity, high energy consumption and significant waste generation, thereby qualifying it as a ‘dirty’ sector.

Let us take the market leader, ITC, into consideration, which has imbibed sustainability at the core of its operations and progressed well on its ESG journey with:
•    Over 41% of energy requirements met from renewable sources
•    99% of the total waste generated (non-hazardous) either reused or recycled
•    5,826,636 tonnes of CO2 sequestered during 2020-21
•    66,820 Acres of plantation added under Social and Farm Forestry initiatives

Despite muted revenue and profitability growth over the past three years, ITC has embarked on the next horizon of sustainable excellence and has set clear targets for 2030 like:

•    50 per cent of total energy consumption from renewable sources
•    40 per cent reduction in specific water consumption (vs. 2018-19 records) 
•    Creation of rainwater harvesting potential of >5x net water consumption 
•    Ensuring 100 per cent packaging is reusable, recyclable, or compostable by 2028
•    Supporting sustainable livelihoods for 10 million people 

ITC has improved by 10 per cent on its ESG score over the last year and its disclosure levels are in line with many leaders in various industries.

Petroleum Sector

The petroleum sector is among the eight core industries in India having a major influence on the economy, with India being the world’s fourth-largest refiner. This industry has a substantial environmental impact such as high energy requirements, uncertainties and risk events like oil spills, toxic waste, greenhouse gas (GHG) emissions and air pollution, thus labelling it as the ‘dirty’ sector.

However, companies like Reliance Industries Limited (RIL) have enhanced sustainability with: 
•    3.56 MW solar power generation project
•    Recycling of 99 million KL water 
•    Energy savings of 51,47,687 GJ
•    Real-time energy conservation and fuel mix optimisation

While RIL has also shown muted growth in terms of its revenue and profitability for FY21, it has stepped up to drive the sustainable growth engine with: 
•    Becoming a Net Zero company by 2035
•    Complementing traditional fuels with clean electricity using solar, wind and hydrogen
•    Cutting down Sulphur Oxide (SOx), Nitrous Oxide (NOx) and Volatile Organic Compound (VOC) emissions by adopting cleaner technologies 
•    Undertaking green investments to mitigate its carbon footprint 

Furthermore, RIL has shown around 9 per cent improvement in terms of its ESG score for the past year and has been increasingly transparent with respect to its ESG measures.  

Power Generation Sector

India is the third largest producer of electricity in the world. Material issues include using high environmental impact energy production (such as thermal power), GHG emissions and waste, thus classifying it as a ‘dirty’ sector. 

However, companies like NTPC Limited are demonstrating their commitment to going green through a significant sustainability push with: 
•    Flue gas desulfurization (FGD) system for SOx emission control
•    Electro-static Precipitators (ESPs) of >99.97 per cent efficiency
•    Reduced specific water consumption by 4.82 per cent
•    Bio-methanation Plant of 100 kg waste/day 

NTPC has displayed a 13 per cent profitability growth and a revenue growth of 19 per cent, though, with a muted CAGR, it has fared well in the ESG space through its various sustainability initiatives:
•    India’s first energy company to commercialise biomass co-firing
•    Plant 1 million saplings every year
•    Diversify fuel capacity mix for 60 GW renewable capacity by 2032
•    Thermal energy replacement with 30,000 MW of renewable rnergy by 2025-26


An ESG analysis captures the risk mitigating mechanism that a company adopts. Its focus is not on identifying the final output and classifying any investment as good or bad. ESG frameworks are not here to judge and tag a company to be anti-ESG; these rather measure the steps taken by a company to confront the challenges in environmental, social and governance spaces. Hence, despite the muted growth in the financials of most of these companies, the investors are seen to be bullish on the long-term business growth of the companies discussed above.  

- Prosenjit Ghosh is Group Chief Business Officer, Acuite Group.