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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Sustainability Audit, ESG Rating and Emerging Mandates from Government and Regulators

Nirmal Foods Ltd's board is told that its ESG rating improved after it published detailed emission and water data, even though its actual emissions did not change. What does this best illustrate?

It shows that ESG ratings can be influenced by the extent and quality of disclosure as well as by actual performance. Better reporting of emissions and water data can raise a score even if operations are unchanged, so users must understand what a rating measures.

  1. ARatings reward only actual performance and never disclosure
  2. BRatings can be influenced by the extent and quality of disclosure, not only by underlying performanceCorrect
  3. CRatings are set by the Registrar of Companies
  4. DRatings depend only on the company's share price

Explanation

Many ESG ratings assess disclosure and transparency along with performance, so better reporting can raise a score without any change in actual emissions. This is why ratings should be read with an understanding of the methodology. The other options misstate who sets ratings or what drives them.

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