Is India ready for ESG?

Newspaper Rainbow Series 28th November 2020 Save

Context: India has huge upside potential as a major emerging market in Environment, Social and Governance(ESG) compliant assets.

Need for ESG aspects in India:

Huge emissions and Climate Vulnerability: India is the world’s third-largest emitter of greenhouse gases and is also extremely vulnerable to climate change.
Inequality and Hunger: India continues to face substantial challenges pertaining to inequality and hunger.
ESG factor in investment decision: Currently, 7% of domestic Asset Under Management(AUM) is invested in ESG funds which are expected to grow to 30% in a decade.
Low investments:: Currently, 7% of domestic Asset Under Management(AUM) is invested in ESG funds which are expected to grow to 30% in a decade.
Huge potential worldwide:
- Globally, ESG investments are expected to triple, and cross $100 trillion in the coming decade. That’s a huge commitment from investors.
- Over 3,000 of them have signed the UN Principles for Responsible Investment,
- 30% of global investments have already undergone ESG screening, and numbers could race past 90% by 2030.

Measures taken by the government to promote ESG compliant assets in India

Increased the extent of disclosures:
- The Securities and Exchange Board of India’s (SEBI), has increased the extent of disclosures and has also standardized the areas of disclosures.
- The enactment of the Companies Act 2013 requires companies to furnish non-financial information, mandatorily.
Pledged environmental targets: India has pledged a 33-35% reduction in the ‘emissions intensity’ of its economy by 2030, compared to 2005 levels.
- India has also become the second country to issue guidelines on green bonds.

Benefits of ESG compliance:

Helps understand risk and opportunities: ESG assessment tools will play an important role in
- Informing investors about their company’s sensitivities;
- Preparation to cope with disruptive legislation aimed at social development;
- Environment protection and corporate governance.
Generates higher value: Investment in ESG conscious companies generates higher value over the long term; Even lenders have started to view green practices favourably.
Businesses with better ESG proposition raise funds at favourable rates, and greater access to global capital also bolsters financial flexibility.
Acknowledges the interest of all stakeholders: Companies that are polluting and hazardous can perform well on ESG metrics and attract global capital if their corporate governance is strong.
Generational opportunity for capital-starved domestic business: By focusing on it and improving disclosure, companies can attract global green investments.