CHENNAI : Where the money goes, corporations follow — and world over, capital is going green. And corporations are following suit rather rapidly.
Over the recent past, Environmental, Social, and Governance (ESG) issues have gained substantial clout in determining the amount of capital that a company can tap on the financial markets.
There are now an increasing number of ESG-focused funds, venture capitalists, and private equity players that refuse to invest in businesses that have large carbon footprints, or are involved in unsustainable ventures.
This global trend has begun to see traction in India too, though it is at a far more nascent stage.
According to a report by Edelweiss Securities, there were ten exclusive domestic ESG funds in the country as of the end of June, eight of which were launched only last year.
And these ten funds commanded an AUM worth Rs 11,800 crore — nearly four times more than the Rs 2,400 crore registered at the end of June 2019.
Granted, this is just a fraction of the AUM of India’s overall mutual fund sector, which stood at over Rs 33 lakh crore as of the end of June 2021, according to AMFI data.
“The number is nowhere close to the international markets where nearly 3,000 ESG schemes are available for investment. Nearly 33% of overall AUM in the US is in ESG-compliant funds, with a considerable amount of retail participation,” pointed out Nish Bhatt, Founder & CEO, Millwood Kane International.
The AUM of ESG funds in Europe is estimated at around $14 trillion, while in the US, this stands at $ 17 trillion.
Green bonds have also become an attractive way to raise capital for clean energy projects.
JP Morgan believes that Indian firms are set to raise $10 billion in 2021 alone.
So far this year, 14 Indian green bond issuances have clocked over $7 billion in funds raised, including issues by Adani Green ($750 mn), JSW Energy ($707 mn), Greenko ($940 mn), and two issues by Renew Power ($460 mn and $585 mn).
It may be early days for India, but Rishi Maheshwari, Director-Investments, White Oak Capital believes ESG-investing will only accelerate, driven by new regulatory and reporting frameworks.
Another major driver is the advent of young retail investors who are far more eco-conscious and focused on sustainability.
“Younger investors place a higher importance to ESG related factors,” Maheshwari noted.
A large part of ESG compliance is also related to corporate governance.
“Having the highest level of integrity and ethical practices for all the stakeholders, including minority shareholders, is a very important aspect considered by investors across the globe,” observed Sachin Shah, Fund Manager, Emkay Investment Managers.
India Inc, meanwhile, has sensed the shift in the wind and begun adjusting sails.
A couple of months ago, oil-to-telecom conglomerate Reliance Industries announced that it would invest as much as Rs 75,000 crore on a new green energy business. Analysts note that this would go some way in mitigating RIL’s presence in sectors such as petroleum.
JSW group and Jindal Steel and Power Ltd (JSPL) have also changed strategies. JSW Energy plans to have a predominantly green energy portfolio, with 85% comprising green and renewable sources by 2030, and has ramped up ESG focus in its steel business.
“Big organisations are planning big capital expenditures in energy transition efforts and that is not small — $2 trillion per annum and it will continue up to 2050,” JSW Steel’s joint managing director and group CFO MVS Seshagiri Rao had said in an earlier interview with TNIE.
JSPL, meanwhile, has separated its power business from its steel business and is set to sell Jindal Power to its promoters.
“In order to realise our target of becoming a 50 MTPA (from the existing 9.6 MTPA) capacity steel company, we have to hive off some of the assets so that we do not violate the carbon emission norms. In the next 8-10 years, investors, lenders and buyers will stay away from companies who violate the carbon emission norms,” managing director V R Sharma told TNIE recently.
Market regulator SEBI has also issued guidelines mandating ESG-related disclosures for India’s 1,000 largest listed firms by FY23.
These business responsibility and sustainability reports (BRSR) will cover aspects such as material environmental, social, governance risks; social-sector disclosures, value chain, communities, consumers; gender diversity etc.
ESG has moved beyond a “soft issue”, into a “strategic priority”, says Maheshwari.
“It is now well understood that a strong ESG proposition built on sustainable growth drivers is a win-win for all stakeholders.”