ESG Investing in India: Trend and Institutional Framework

Globally, investors follow the UN’s suggested Sustainable Development Goals to gauge the right kind of return on investment. Apart from the financial returns, they are now well aware of the environmental and social return on their own investment as this not only gives them better sustainability but also leverages their operational and financial performance. They expect their money to contribute to the prosperity of people and the planet, and to support companies with sustainable business models. Along with social prosperity and environmental sustainability, an effective environmental, social and governance (ESG) proposition leads to greater value creation for the organization. This is why ESG-oriented investments have experienced exponentially accelerated growth. Investors realize that the ESG proposition protects a company’s long-term success. Research indicates that ESG-integrated companies have reaped more profits, this may be unprofitable in the short term but certainly enhance the sustainability of the company in the long term.

Experts suggest that corporate governance, the environment and society are completely linked phenomena. An organization’s governance systems also impact its social and environmental performance. Violation of data confidentiality agreements and environmental standards are examples of such poor governance systems where this has led to a negative impact on the societal and environmental facade.

The concept of ESG investments is also gaining attention in India. The policy designed for climate-friendly investments and sustainable green energy is in line with the country’s SDG priority and also encourages ESG investments in the country. A recent economic study suggests an explicit need to integrate climate and financial standards. Such integration of the investment decision-making process is not only substantial in resolving societal and environmental complications, but also leads to achieving the country’s SDGs, including reducing carbon emissions by 30% by 2050 and 40% by energy supply from non-fossil fuel sources by 2050. 2030. The Impact Investors Council (IIC) report, 2020 mentions that an annual investment of USD 0.6 trillion is required by India to achieve its SDGs committed.

Sustainable investments in India are mainly promoted by the Ministry of Commercial Affairs, with the support of the capital market regulator SEBI. They have introduced various guidelines for companies to implement the Principles for Responsible Investment. The GoI has also formed the Impact Investors Council (IIC) to drive impact investing in the country.

The very first initiatives in ESG investing were taken by MCA in 2009 with the declaration of the “Voluntary Guidelines on Corporate Social Responsibility”, for the integration of sustainability into business practices and its decision-making processes. In 2010, another CSR guideline was developed by the Department of Public Enterprises to encourage CSR activities among central public sector enterprises. The MCA draws companies’ attention to the importance of ESG by announcing the “Voluntary National Guidelines on Corporate Social, Environmental and Economic Responsibilities, 2011”.

The Companies Act 2013 emphasized the new Corporate and Social Responsibility Rule 2014 as well as ESG investment needs. Business houses spend at least 2% of their profits on social development projects including education, health, environment, gender, skills development, WASH, etc.

In 2015, the “Voluntary National Guidelines for Responsible Finance” were announced by the Government of India, with the aim of encouraging the principles of sustainable business practices. As a result, many financial institutions have introduced integrated ESG systems and are increasingly adopting ESG standards in their investment decision-making processes.

Another guideline, the National Responsible Business Conduct (RBC) Guidelines, was declared in 2019 to help business entities adopt the principles of Responsible Business Conduct and Responsible Business Behaviour. In 2020, a committee was formed to develop the format for the Annual Corporate Responsibility Report (ABRR) under this directive. This committee strives to capture the non-financial metrics of listed and unlisted companies using a reporting structure called the Business Responsibility and Sustainability Report (BRSR). Under SEBI regulations, in 2012, where 100 listed companies were required to follow the “Annual Corporate Responsibility Report (ABRR) publication” format, in 2019, this number increased to 1,000.

To propose a reporting structure and disclosure requirements related to various aspects of ESG investing, a working group was formed by SEBI in 2019. This paved the way for the institutionalization of a social stock exchange (SSE).

Although ESG investing is in its infancy in India, government policies and guidelines have evolved over the years. Gradually, these policies were made mandatory from a voluntary regime. With the increase in responsible investment, visible progress has been made, particularly in the area of ​​RE sourcing and in meeting energy efficiency and effective waste management targets. It is necessary to form a holistic approach to cover all companies, investors and clients to contribute to ESG investing in order to achieve environmental and business entity sustainability.



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The opinions expressed above are those of the author.



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