NOTES ON "THE EXPERIMENTAL SCIENCE RATING METHOD IN SOCIAL AUDIT" AND THE POOR CRISIL RATING METHOD – CHALLENGES ON THE ESG AUDIT – WITH CASE STUDY FROM THE NAYARA ENERGY LIMITED:

 

 

*BIRENDRA K JHA 

The ancient port of Dwarka, shown in yellow circle is treasure of human mankind. This site remains submerged and visible to satellite during specific period. On this Ancient Port, the Nayara Energy Limited has established premise for unloading crude petroleum products for the Jamnagar refinery. There is huge petroleum seepage recorded here ( see below satellite photographs), which shows that the Environment Pillar of the ESG is not maintained in good condition in this company. ( Source: Taken from the Social Impact Assessment Report conducted by Author )   
                                                     

(Warning : "The Experimental Science Rating Method in Social Audit” is a tool developed by this Social Auditor (the author). This is an intellectual property right protected by this Social Auditor not to be used in any way in any audit including the ESG Audit or the Social Impact Assessment Audit, without the written permission of this Social Auditor. For research paper publication  and academic works credit shall be given to this Social Auditor, with clear name and Membership Number  of the Institute of Social Auditors of India)

I have demonstrated somewhere that the ESG rating method of CRISIL is defective, poor and bad. I have demonstrated this aspect through the Axis Bank’s ESG rating conducted by CRISIL in 2022. This is giving wrong information to the shareholders. The  CRISIL had placed the Axis Bank in the "Leadership Category", without verifying the correct fact, validated in third party social audit. 

This needs honest improvement in the ESG rating method. Now again the same CRISIL rating is examined here with the Nayara Energy Ltd. The CRISIL has given the ESG rating of this company as “Below Average” in 2022. Not to mention, this combined rating is poor and also giving wrong information to the shareholders. It fails to explain, which individual pillars are weak or strong.  

“EXPERIMENTAL SCIENCE RATING METHOD":

In my past vast experience of conducting the ESG Audit, I have understood very quickly that the traditional way and methods in which the ESG Audit is conducted under the Social Audit are poor. I have developed rating based on the “Experimental Science Rating Method”, where the combined score of the Environmental; Social and Governance parts are exhibited in this way:

                                                      E^- S⁺G^-    

Any prudent investor may quickly understand that in above rating the Environment and Governance parts have “Poor or No Confidence Level” and the social part has “Good Confidence” level. 

In Experimental Science, the Plus (+) sign denotes “Good Confidence Level” and the Minus (-) sign denotes “Poor or No Confidence Level”. It gives more clarity and transparent system then the combined rating score, exhibited  as “Average” or “Leadership Grade” of the entire three pillars.  

In “Experimental Science” any percent score at “80% and above” is exhibited as “Good Confidence Level” (Plus sign +) and any % numbers falling between “0% to less than 80 %” is denoted as “Poor or No Confidence Level”. The important theorem of this “Experimental Science Rating Method”, is that “If any of the ESG pillar contradicts clearly law of the land or supported with any fraud document with a purpose to hide fact, then the entire rating of that pillar is “Negative”. For example, in social pillar, if clear evidence is there where child labor has been used in the business process and the other parameters of the social pillar are showing excellent result then also the entire social pillar is “Negative”.   

Wherever data is not available or company department is not cooperating in the ESG audit, what I presume a pretending way to hide data, then  this has been rated as Zero (showing unable to audit or company not cooperating) as shown below:

E⁰ S⁺G^-

Any prudent investor, shall immediately catch that the Social Auditor has been able to conduct the Social Audit of the Social and Governance part but the Social Auditor has not been provided any data or company is not cooperating in conducting the Social Audit of the “Environment Part”.

The ESG Rating needs more clarity, when India has definite Sustainable Goal Target to achieve at a fast rate. The “Leadership Grade” or the “Below Average Grade” as given by CRISIL should be avoided. Not to mention, the “Leadership Grade Rating” of the Axis Bank by CRISIL has collapsed. This rating is done without, conducting any third-party Social Audit as precautionary measure, when past precedent history of this bank is poor.  This rating does not demonstrate what is the condition of the ESG individual parameters.  With my vast experience of more than 15 years in Social Audit, this type of practice shows the CRISIL had closed eyes in supplying the correct rating. The CRISIL is still a toddler and learning to walk in the ESG Rating business! It may be a specialized agency in financial rating, but in the ESG Rating, which demands high skill in the field of the Social Audit  is extremely poor.    

NAYARA ENERGY SOCIAL AUDIT OF ENVIRONMENT: THIS IS “BELOW AVERAGE” OR “MINUS”?    

CRISIL in the ESG Rating of 2022 has rated Nayara Energy as “Below Average”. This combined rating is poor and bad again. This gives reflection that Environment; Social and Governance parts are “Average or Below Average”.  It gives wrong information to the shareholders. I shall demonstrate and conduct here a Third-Party Social Audit of the Environment Part. I shall not touch here the Social and Governance parts. I presume here that the Social and Governance parts of the Nayara Energy are both with “Good Confidence Level" at Plus Rating.  I also presume here that the “Life Below Water including the submerged heritage sites” which is an important milestone of the SDG Goal are covered in the Environment Pillar. I will not conduct here deep “Social Audit” of the entire Environment Part, but shall touch down specific part of the Environment Law Violation and the Heritage Preservation Law Violation. This rating has been conducted taking into account the  theorem of the “Experimental Science Rating Method”. This theorem is very clear, this says “If any of the ESG pillar contradicts clearly law of the land or supported with any fraud document with a purpose to hide fact, then the entire rating of that pillar is “Negative”.    

As a “Social Auditor” I shall pluck data available in the public domain. Mostly sophisticated electronic gadgets are hardly used by the “Social Auditor”. This is lack of skill. I have mostly used satellite data in conducting the ESG Audit for cross checking the “Environmental Compliance”.

The Water (Prevention and Control of Pollution) Act, 1974 mandates the meaning of "pollution" in this way:

Section 2 (e) says:  "pollution" means such contamination of water or such alteration of the physical, chemical or biological properties of water or such discharge of any sewage or trade effluent or of any other liquid, gaseous or solid substance into water (whether directly or indirectly) as may, or is likely to, create a nuisance or render such water harmful or injurious to public health or safety, or to domestic, commercial, industrial, agricultural or other legitimate uses, or to the life and health of animals or plants or of aquatic organisms.

Further Section 2 (j) says: "stream" includes- (v) sea or tidal waters to such extent or, as the case may be, to such point as the State Government may, by notification in the Official Gazette, specify in this behalf;

Again Section 2 (k) says “trade effluent" includes any liquid, gaseous or solid substance which is discharged from any premises used for carrying on any Industry, operation or process, or treatment and disposal system, other than domestic sewage.

While reading these three sections,  this is clear any petroleum discharge in seawater is a “Trade Effluent”. This substance is coming from the premise of cargo hanger point which is constructed in deep sea by the refinery for the purpose of unloading imported crude petroleum products. This  attracts the violation of the Water (Prevention and Control of Pollution) Act, 1974. This is demonstrated clearly through series of satellite photographs shown below. This petroleum seepage, which is “Trade Effluent” has damaged mangroves, coral and other aquatic plants of the Ocean. The underwater life of the heritage cultural sites, which is covered and protected  within the 2001 UNESCO convention on the protection of underwater cultural heritage, is also damaged by such “Trade Effluent”. Not to mention, the petroleum seepage and business activity in this area has damaged the ancient white marble stone and the other ancient heritage sites. This is again demonstrated in satellite photographs shown below.   

The 2001 UNESCO Convention on the Protection of Underwater Cultural Heritage, in which India is a signatory, is an important international agreement, where India and its citizens including this company,  are bound to protect under Article 149 and 303 the  convention law.  This mandates, compulsorily to protect the underwater cultural heritage sites of the Gulf of Kutch.

Article 149 of the convention provides that: " All objects of an archaeological and historical nature found in the Area shall be preserved or disposed of for the benefit of mankind as a whole, particular regard being paid to the preferential rights of the State or country of origin, or the State of cultural origin, or the State of historical and archaeological origin."

The underwater sites are archaeological sites as defined clearly under the Ancient Monuments Preservation Act 1904. The   Section 2 (1) of this Act says: “In this Act, unless there is anything repugnant in the subject or context. — (1) “ancient monument” means any structure, erection or monument, or any tumulus or place of interment, or any cave, rock-sculpture, inscription or monolith, which is of historical, archaeological or artistic interest, or any remains thereof".

After reading The 2001 UNESCO Convention on the Protection of Underwater Cultural Heritage and the Ancient Monuments Preservation Act 1904, the Social Auditor of any sound mind shall come to the conclusion that the petroleum seepage coming from the oil refinery establishments, as “Trade Effluent” has damaged clearly the sea environment and the underwater heritage sites.   This is clear violation of the Water (Prevention and Control of Pollution) Act, 1974 and the 2001 UNESCO Convention on the Protection of Underwater Cultural Heritage, read with the Ancient Monuments Preservation Act 1904.

In this situation the Rating of the Environment Part of the Nayara Energy Ltd stands at "Negative". As the Social Auditor looks clear violation of the Environmental Law in the satellite reading. This shall be not “Below Average” as understood by CRISIL. This is very confusing, where it fails to explain in "Below Average" rating where, the Environment pillar stands in this company ? 

Thus, the overall rating of the Environment pillar, at the Nayara Energy Ltd,  is “Negative” and as presumed earlier the Social and Governance pillars are “Positive” then in such condition the combined rating of the Nayara Energy Limited stands at following rating :   

E^- S⁺G⁺

The Nayara Energy Ltd has opportunity to honestly improve the Environment rating through actual ground working and conducting onsite third party social audit after improvement.  

Not to mention, that company is very attractive and best for investment purpose, which in overall rating attends completely the  " Sustainable Development Goal". This complete achievement is exhibited through the following combined rating: 

E⁺ S⁺G⁺

India as a responsible state has determination to achieve in Indian industries the complete Sustainable Development Goal  through the complete achievement of the ESG. 

PROOF  IN SATELLITE PHOTOGRAPHS : 

This site is the premise of Jamnagar Refinery constructed in deep sea for unloading crude petroleum products imported from the foreign countries. During unloading of petroleum products, in large quantities petroleum oil as seepage,  contaminates the Ocean water. In the satellite photograph a dark-black floating streak of  seepage oil is seen clearly on the surface of blue ocean water. This is negligence of the Company and violation of the Environmental Law ( Source: Taken from the Social Impact Assessment Report conducted by Author )  

This site is again showing another seepage of petroleum products just floating on Ocean sea water near the hanger mouth. Also in this picture, where the station is constructed, that is the "Ancient Site of the Dwarka Port". The   ancient stone in green shade is visible clearly. This location site another picture is at the top side of this paper article. This site is visible to satellite on particular day. Most of the time the ancient site remains underwater.  ( Source: Taken from the Social Impact Assessment Report conducted by Author ).

This is showing that at the Jamnagar Refinery,  petroleum wastes accumulates at the treatment center and floats through unregulated stream and joins Ocean through again an uncontrolled  check dam ( Source: Taken from the Social Impact Assessment Report conducted by Author ).

This photograph shows here that a small stream of  waste water is moving towards the check dam. In the Annual Report of this company such waste water is used inside and not allowed to meet the stream. But statement is contradictory, waste water stream is moving towards the uncontrolled check dam.( Source: Taken from the Social Impact Assessment Report conducted by Author ).   

This photograph shows that waste water coming from the treatment center joins here at this check dam. Waste water with deep purple color shows petroleum wastes ( Source: Taken from the Social Impact Assessment Report conducted by Author ).

This photograph shows, from the uncontrolled check dam again waste water seepage moves to Ocean through various streams ( Source: Taken from the Social Impact Assessment Report conducted by Author ).

                          
 This photograph says underwater heritage site, which is built in white marble stone,  is in threatening condition from the petroleum seepage coming from the unloading station. The petroleum seepage, as demonstrated earlier, is an illegal activity, as India is a signing partner of the 2001 UNESCO Convention on the Protection of Underwater Cultural Heritage ( Source: Taken from the Social Impact Assessment Report conducted by Author ).

(  Birendra K Jha,  is a Pan India Practitioner on the "Social Impact Assessment Audit" & "ESG Audit".  He is a Qualified & Certified  Social Auditor from the ISAI (ICAI). He is Director of HR Lab, a Social  Audit firm. Apart from Social Audit, he provides consultation on the CSR Audit, ESG Audit, CSR funds; CSR Programs; CSR Need Assessment; CSR Program Measurement; Entry & Registration- Social Stock Exchange & provides Capacity Development Training to industries on the CSR & ESG. He is based at Delhi-NCR. He overlooked at senior position as General Manager and Deputy General Manager in the previous South Korean MNC Company in India handling human resource and social audit of ESG practices for more than a decade. He may be approached at: birendrajha03@yahoo.com )