Large investors and institutional players, especially in the US and Europe, are now increasingly investing in companies that meet ESG standards. Globally, sustainable investing assets in the five major markets rose to $ 30.7 trillion in 2018. The reason being increasingly investors are being cognizant about the risks involved around ESG factors outside of pure financial risks while investing in a company. There have been several instances in which due to governance issues, or unethical labour laws a company has seen significant value erosion. In the 2019 Green Intelligence report by The Economist, some 95% of respondents believed that ESG investing is important to their firm, and the overwhelming majority expected that to increase over the next three years. More than 80% believed ESG has a positive financial impact.
For India to attract such investors and increasing the share of FDI in this country, which in turn will generate massive employment, the government policies have to focus on ESG parameters. Going by the Prime Minister’s recent commentary, as well as some of the steps taken by the country as part of the Paris Agreement, the prospects look promising. Work is also underway to achieve the country’s carbon intensity reduction and non-fossil fuel electricity growth capacity commitments by 2030 as part of the Paris accord. India is also the only “2°C compatible” country among G20 nations. In addition to this, India’s reaffirmation of its commitment towards ESG and the likely steps from the U.S. to implement policies towards the same, will be beneficial for companies that have and will conform to such standards and best practices going forward. The inflow of foreign funds augurs well both for capital markets as well individual sectors and businesses in driving India’s next leap of growth. Market data suggests that our two years fund raising in key global markets like U.S. & Europe has seen ESG compliant businesses like Technology, Pharma, and Financial Services being top beneficiaries of new capital. Studies show that sound sustainability standards lower the cost of capital of companies.
The European Union has already issued several ESG regulations that includes, among others, non-financial reporting directive, sustainability related disclosures regulation that requires investment firms and asset owners to make disclosures on the integration of ESG risks, and Taxonomy regulation that sets out a common classification system for economic activities to be considered environmentally sustainable with focus on sectors that play a key role. What this means? That European investment firms will consider ESG scores for pumping in money. Then we have the U.S. which is one of the main source of capital for the markets and given the excess liquidity and near zero interest rates, emerging markets such as India are likely to benefit. If U.S. pushes the pedal on its climate policies and comes up with EU like guidelines, one can expect more foreign investments chasing the ESG compliant companies.
“Aim to invest in Aditya Birla Sun Life ESG Fund“
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