Why ESG investing will work

Investing in ESG means moving from a simple “good idea” to a reality for the business world. The international context has become critical for Indian companies operating or wanting to do business in markets inside and outside India where ESG is the key criterion in their responsibility matrix. Indian business leaders will face inevitable pressure and scrutiny for their actions on ESG metrics such as ethics, environment, sustainability, human rights, diversity, environmental protection and inclusive growth among many other parameters.

It is imperative that investment professionals keep abreast of ESG trends and the factors that make a company conform to those trends. Big corporations are realizing this and stepping up their game. strengthened in emerging markets in recent years, with a 50% growth in the number of signatories headquartered there. in 2020.” Today, the number is expected to hit 4,000 and is expected to rise further and their collective value exceeds $100 trillion. It’s just an anecdote in the sea that may serve as a wake-up call for those of us who still turn a blind eye to ESG investing.

But why do we need sustainable investments?

As most of us know, the most comprehensive framework for sustainability has been provided by the UN as part of its Sustainable Development Goals (SDGs). It is not enough to recognize the complete set of values ​​defined for companies, but also to realize the requirement of the situation. Take for example UNCTAD’s World Investment Report or the United Nations Conference on Trade and Development, which estimates that 5 to 7 trillion US dollars would be needed each year in the world between 2015 and 2030 to finance steady progress towards the SDGs.

Does this mean reducing the company’s profits?

The short answer is no. In fact, many companies see it as an opportunity to diversify their business. For example, to meet the challenge of increasing deaths from preventable diseases and growing awareness about it given the pandemic we have just witnessed, we will see a growing trend of investments in the development of drugs and antibiotics. Another predictive example is investment in the agricultural sector. The COP 26 agenda on sustainable agriculture highlighted why we need to change our eating habits and why agriculture is about to undergo a radical overhaul. This can be a potential investment site for the conscious investor. NITI Ayog has provided a country-specific SDG India Index and over time much more attention will be given to Indian companies’ commitment to achieving these goals.

However, there is a catch: “Today, most ESG investments are understood by industries as environmental compliance and CSR investing. There are many cases of greenwashing and repositioning of regular compliance activities as part of ESG. says Niroj Mohanty, Managing Director of Core CarbonX Sols Pvt Ltd, a climate change consultancy. Hopefully, greenwashing will be a thing of the past, especially with the rise of climate-smart vocabulary like transparency, accountability, etc. With the media, the private sector and mainstream publications explaining what ESG means, the margin for error is shrinking. In 2012, the Security and Exchange Board (SEBI) amended the Listing Agreement and made it mandatory for listed companies to submit an annual Corporate Responsibility Report (BRR) for the 100 largest companies. These mandatory requirements for filing a Corporate Responsibility and Sustainability Report (BRSR) from the year 2022-2023 have been extended to 1000 listed companies (by market capitalization). These steps will bring new levels of accountability and greater emphasis on ESG investing. Now there will be commonalities with ESG watchdogs setting the minimum standard that all companies must adhere to, while retaining regional particularities.

Even though we didn’t have the legal system to back us up, recent examples of many poor corporate governance are coming to light (look at the NPAs and the number of company liquidation cases in NCLT), the severity of the change climate change and its impact on industries and their ecosystems and ESG activism, companies realize that not integrating environmental, social and governance criteria into their decision-making process erodes shareholder value. It makes economic sense for companies to not only deliver financial results, but also show how they benefit the ecosystem of shareholders, employees, customers and the market in which they operate.

What will happen in the future?

Simply put, the realm of investments is going to change. US companies have clarified their trade roundtable alliance and the European Commission has implemented regulations that mandate ESG performance reporting. Major bodies realize that while environmental climate risks are to be brought under control, vulnerable communities cannot be left behind. As an increasing number of Indian companies have a global footprint through their business operations or supply chain linkages, we are seeing a growing demand for companies to report reliable and reliable ESG data and information. qualitative. This will translate into the number of companies committing to building capacity and resources for ESG measurement and compliance. The focus will be on digitizing ESG reports and comparisons. We are seeing many new era companies, including blockchain and AI companies, making their presence felt in this space.

It’s also an opportunity for young professionals to consider this area of ​​expertise, as demand is high, but the talent pool is dry. “One of the biggest challenges today is finding quality ESG professionals for leadership positions. In the absence of this, companies are hiring professionals from other fields to take on ESG responsibility due to increased demand. Note Mohanty. We will see ESG specialization grow as a subject of study and employment. Although the initiation is good, we still have a long way to go, notes Vibhuti Patel , Head of ESG, BluSmart, “Environmental, social and governance (ESG) investing has attracted greater attention from investors and clients around the world. However, the practices are still in their infancy and there is great variability. Investors should therefore do their own research and understand the investment objectives and characteristics when investing.

Although investing in ESG is just beginning, companies should see it as an opportunity, a sustainable and long-term commitment that can generate profitable growth rather than a challenge; it is not always about mitigating risks but also about development that creates opportunities. Many climate technology companies are scaling up and creating multi-billion dollar assets for investors in transportation, agriculture, and renewable energy. The market is ripe for brands to invest in ethical business without fear of repercussions.

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