The expanding landscape of environmental, social and governance in India

Media will have a major role to play in creating mass awareness among investors in India

By Abhishek Gawande,
Published: Monday 31 May 2021
The expanding landscape of environmental, social and governance in India

Responsible investing and ‘environmental, social and governance’ (ESG) is a global trend that has started to gain momentum in India. Unlike in the developed world, ESG investment is still at a nascent stage in the Indian market.

There are only two asset management companies which are signatories to United Nations-supported principles for responsible investment (UN PRI) — SBI Mutual Fund and Kotak Mutual Fund — as the proxy for the penetration of ESG investment in India.

In comparison, the developed world has hundreds of ESG funds in accordance with the principles of UN PRI.

The Indian market has slowly started to respond to the global trends as two ESG funds worth $1 billion each has been announced recently by Quantum Investors and Avendus.

Despite the increased ESG-focused conversations and growing interest of various stakeholders towards responsible investing, there are quite a lot of challenges that hinder its overall progress and wide adoption in the developing market like India.

First, there is a lack of clarity and understanding among investors and other stakeholders about the ESG terminology.

Second, there is inconsistency in the ESG ratings due to the differences in data collection, analysis and rating methodology by ESG rating agencies. The lack of reliable and standardised metrics to adequately measure the ESG factors results in discrepancies n comparability of different firms.

Third, the quality of ESG information needs to be adequate and to the point to avoid information overload and big data problem.

Fourth, the role of ESG in investment markets is a big concern due to the inadequate disclosures and lack of availability of data.

In the developed world, both individual as well as institutional investors are very active as far as ESG and responsible investment are concerned. In order to satisfy the demands from investors, asset management companies are frequently factoring in new products.

The awareness among investors, moreover, has been created by the media, regulatory bodies and various institutions. However, if the same level of awareness has to be created in India, then asset management companies will have to take the lead.

SBI Mutual Fund has initiated the process to make investors aware about the merits of ESG investment but the media will have a major role to play in creating mass awareness among investors in India.

It is the collective responsibility of the Indian institutional investors like mutual funds, banks and insurance companies to take up a leading role in embracing the concept of ESG investment philosophy into their investment decisions.

Views expressed by the author do not necessarily reflect that of Down To Earth.

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