Sustainalytics finds only 30% of companies have strong board independence

Morningstar Sustainalytics found that only 30% of over 4,200 analysed companies have at least two-thirds independent directors, with most scoring moderate on governance. The findings underscore tightening investor scrutiny of board independence that Indian listed companies face under SEBI governance norms.

Morningstar Sustainalytics research found that only 30% of over 4,200 analysed companies have robust board independence, defined as at least two-thirds of board members being independent directors. The majority assessed under Sustainalytics' ESG Risk Ratings had moderate corporate governance management scores. After updating its governance methodology, Sustainalytics found over 60% of companies scored between 40 and 70 on a 0-to-100 scale, where higher scores indicate better governance practices.

Listed companies across markets are affected, as investors increasingly treat governance as material to investment decisions. ESG Research Director Henry Hofman said corporate governance is a core ESG component and a material part of any investment decision, capable of ensuring alignment, transparency, and trust at its best, or causing the collapse of long-standing institutions at its worst. Companies with weak board independence or moderate governance scores face heightened scrutiny from investors using updated rating methodologies.

Companies should benchmark board composition against the two-thirds-independent threshold and review governance practices contributing to ratings scored on the 0-to-100 scale. Boards scoring in the moderate 40-to-70 band should identify gaps in independence, alignment, and transparency that investors increasingly weigh. Indian listed companies subject to SEBI board-independence requirements should monitor how rating providers like Sustainalytics quantify governance, given that robust governance measures are positioned to play an important role in investment approaches.

Key figure — Companies with strong board independence: 30% of 4,200+ analysed