Sei sulla pagina 1di 15

Sustainable Investing

India's Emerging ESG Asset Class


What is ESG?
 In Brazil, mining giant Vale announced in March that one of its dams was going to
collapse, after which it helped evacuate people. This came after another Vale-operated
dam collapsed in January, killing 300 people and contaminating rivers. Vale faced about
$7 billion in fines and lost 20 percent in market cap in the days after. Who bore the
brunt of this? The shareholders.

 This damage to the shareholders could have been limited had the investors prioritised
investing in a company which adhered to norms of ‘responsible investing’/ESG

 ESG means using Environmental, Social and Governance factors to evaluate companies
and countries wrt sustainability

 These aspects can be integrated into the investment process when deciding what
equities or bonds to buy

2
Why invest responsibly?
The global momentum around responsible investment is driven by:
 Recognition in the financial community that ESG factors play a material role in
determining risk and return;
 Understanding that incorporating ESG factors is part of investment managers fiduciary
duty to their clients and beneficiaries;
 Pressure from competitors seeking to differentiate themselves by offering responsible
investment services as a competitive advantage;
 Beneficiaries becoming increasingly active and demanding transparency about where
and how their money is being invested;
 Value-destroying reputational risk from issues such as climate change, pollution,
working conditions, employee diversity, corruption and aggressive tax strategies in a
world of globalisation and social media

3
ESG is already very big in US
 Funds that bet on companies that perform better on environmental, social or good-
governance criteria are one of the fastest-growing asset classes in the U.S.

 More than 140 ESG funds have been launched globally in 2018. In the beginning of
2018, $11.6 trillion of all professionally managed assets—one $1 of every $4 invested in
the United States—were under ESG investment strategies, a sharp increase from 2010,
when the amount was close to just $3 trillion overall.

 Top specific ESG criteria for money managers in 2018 were climate change and carbon
($3 trillion), tobacco-related restrictions ($2.89 trillion), conflict risk ($2.26 trillion),
human rights ($2.22 trillion), and transparency and anti-corruption ($2.22 trillion).

 BlackRock has predicted that global assets in exchange traded funds that have a
sustainable focus will rise to $400bn over the next decade — an increase of some
1,500% from 2018’s figure.

4
ESG – Global Trends
Major trends contributing to the rise of ESG are:
 Good Governance is systematically important
 Climate change is a reality
 Energy sources are shifting
 Technology is changing what we demand and how we consume
 Regulation is providing tailwinds
 Value chains are global

• The trend toward more corporate transparency will continue to grow. The UN Principles
for Responsible Investment have now been signed by 345 large asset owners.
• Credit ratings are accounting for ESG considerations
• In fact, Amundi, Europe’s biggest asset manager, has pledged to fully screen for ESG in
100% of its investments by 2021.
5
ESG – Global Outlook
 Globally, sustainable investing assets in the five major markets stood at $30.7 trillion at
the start of 2018, a 34 percent increase in two years. In all the regions except Europe,
sustainable investing’s market share has also grown.

 Responsible investment now commands a sizable share of professionally managed


assets in each region, ranging from 18 percent in Japan to 63 percent in Australia and
New Zealand. Clearly, sustainable investing constitutes a major force across global
financial markets.

 From 2016 to 2018, the fastest growing region has been Japan, followed by
Australia/New Zealand and Canada. These were also the three fastest growing regions
in the previous two-year period.

 The largest three regions— based on the value of their sustainable investing assets—
were Europe, the United States and Japan.

6
ESG Index – ESG Funds offer competitive returns

7
ESG IN INDIA
Why this is the best time for ESG to grow in India?
 Indian companies have faced Corporate governance issues in recent times with
examples of companies like IL&FS, PC Jeweller, Vakrangee among others.

 The Securities and Exchange Board of India through its ‘Listing


Regulations’ mandated the top 500 listed entities by market capitalisation to
file Business Responsibility Reports (BRRs) from an environmental, social and
governance perspective.

 Companies have now started focusing on different metrics and are looking at
growth from an ESG perspective.

9
India – Catching up?
 5 years ago, there was no fund in India which only invested in companies that
followed ESG standards.
 But as the world is embracing ESG standards, ESG funds have also caught up
in India.
 The data points justify the fact that investors, globally, are increasingly seeking
to invest in companies that are compliant with sustainable principles.
 While, it still early days for ESG investing in India, momentum is picking up

10
Corporate Governance Scorecard - India
 BSE has developed a "CG Scorecard" for Indian corporates. The CG Scorecard will help companies
to benchmark themselves on their Corporate Governance status as well as provide investors a
standardized measure of the Corporate Governance status of any company.

 The CG Scorecard is developed on the basis of four OECD principles for Corporate Governance
namely (weightage given in brackets):

• Enforcing rights and Equitable treatment of shareholders (30%)

• Role of Stakeholders (10%)

• Disclosures and Transparency (30%)

• Responsibilities of the Board (30%)

 This step taken by BSE helps companies to assess the quality of its Corporate Governance and
their progress over time in corporate governance practices and help them identify with the best
followed corporate governance practices across the globe.

11
Report on Indian Corporate Governance
 A report on Indian corporate governance by the BSE Ltd., IFC and Institutional Investor Advisory Services has
said that HDFC Bank Ltd., Infosys Ltd. and Wipro Ltd. have the best corporate governance practices as the
standards improved for Indian companies in the past one year, compelled by a changing regulatory dynamic and
greater engagement with investors.
 The report highlights that the median score of the S&P BSE Sensex 30 companies is higher than of the remaining
70 companies in S&P BSE 100 Index.
The top 10 companies with the best Corporate Governance Score are:
 Bharti Airtel
 Bosch
 Crompton Greaves Consumer Electricials
 HDFC Bank
 Hindustan Unilever
 Infosys
 Mahindra & Mahindra
 Mahindra & Mahindra Financial Services
 Marico
 Wipro
12
Why an Indian investor will shift?
 Investors who are socially conscious and want to make a difference will choose to
invest in such funds.
 The low volatility and high-quality stock mix of ESG Funds supports their potential
outperformance in the long term. ESG funds appear to carry less risk and have been
beneficial in market downturns. ESG funds serve best as long-term investments, as
these stock mixes tend to outperform over long term horizons.

13
ESG Funds in India
 3-4 funds (Avendus, Quantum, and SBI) have been launched in India which follow ESG principles
for their investments.

 SBI Magnum Equity ESG Fund invests in companies following the Environmental, Social and
Governance (ESG) criteria. Companies are scored across parameters from Governance, Social &
Environmental aspects of the company’s management of its affairs. Active weights of a security are
determined by the ESG scores. A positive score will enable a positive active weight, and vice-versa.
The top 10 holdings in the portfolio are: HDFC Bank, Reliance Industries, Bajaj Finance, Kotak
Mahindra Bank, Infosys, ICICI Bank, Larsen & Toubro, Tata Consultancy Services, Axis Bank &
Asian Paints.

 Avendus India ESG Fund is a fund that aims to deliver Alpha with the additional perspective of ESG
benefits. Their investment objective is to provide investors with opportunities for long term capital
appreciation with lower volatility through investing in companies that practice sound environmental
social and governance policies.

14
ESG Funds in India
 The Quantum India ESG Equity Fund invests in companies that are focused on conserving the
environment, positively impacting communities that they operate in, and conducting business
ethically. Given that ESG investing is at the nascent stages in India and that not many companies
meet these parameters, Quantum believes there’s an advantage to being a first-mover in owning
these stocks. The top 10 holdings in the portfolio are: HDFC Bank, HDFC, Tata Consultancy
Services, Indian Hotels, HCL Technologies, Shree Cement , Infosys, TVS Motor Co, Tata Chemicals
& Marico.

15

Potrebbero piacerti anche