The ESG Ecosystem in India

‘ESG’ is a term that has been floating around quite a lot recently. Simply put, ESG stands for Environmental, Social, and Governance (ESG). It’s a set of criteria pertinent to a company, mostly used by socially conscious investors to determine the impact their potential investments could have in those fields. ESG investments have been known socially responsible investing (SRI) or impact investing as well.

ESG investments are being lauded for their ability to increase social & environmental accountability from the part of companies. By tying the ESG criteria to investment, it acts as a motivation for companies to consider their extraneous impact, above and beyond their core-functions.

Interest about ESG criteria has peaked among investors in the past 5 years. India’s ecosystem for ESG investment is in the growth phase, but there’s a long-standing history behind the same. This history can be traced back to at least 2009, when the Voluntary Guidelines on Corporate Social Responsibility. Currently, the policy-backings for ESG investment is quite high in India. The country has a robust CSR mandate already. India is also a signatory of the Paris agreement to reduce greenhouse gas emissions, indicating that a transition towards environmentally friendly production practices will be prioritized in the coming years. All of this has laid a good foundation for SEBI’s (Securities and Exchange Board of India) new Business Responsibility and Sustainability Reporting rules, which will mandate it for the top 1000 listed companies in the country to publicly disclose their ESG journey so far.

India’s push towards ESG has also been motivated by the available funds: there’s a massive global pool of capital, ranging upwards of US$120 trillion that is controlled by signatories to the United Nations Principles of Responsible Investing (UNPRI). This is capital that will only be invested in organizations with a robust and provable ESG impact. Companies have moved from asking ‘why’ they should focus on ESG investors, and have moved on to the question of ‘how’.

The primary focus, in India, is on ‘E’, and that’s where most of the momentum is. This indicates that investors are keen on putting their money into ventures that mitigate climate change and environmental protection issues. This does not only include investments towards newer clean-energy companies, waste-management organizations etc. There’s also significant investment going into ‘greening’ existing power & conventional utility companies.

India’s existing push towards clean energy has made it easier to focus on the ‘E’ part of ESG. Currently, the social and governance metrics have had little focus, due to a lack of standardization and lack of required reporting of the same in the past. There are some aspects of social impact that have been climbing on top of investor’s metrics: including diversity and inclusion, but it needs to be turned into a sustained focus. Similarly, governance metrics are restricted to compliance factors currently, and have not had a uniform reporting standard for companies of varied sizes. Greater focus on the S&G elements can help certain organizations corner an area of the investor market that might currently be underutilized.

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