Mumbai: Avendus Capital Public Markets Alternate Strategies, the alternative asset management arm of Avendus Capital, recently launched a $1 billion ESG (environmental, social and governance) fund. It’s one of India’s first funds to incorporate an ESG strategy for portfolio construction.
What are ESG funds?
ESG (environmental, social and governance) funds invest in companies that not only conduct their business in a fair and ethical manner, but also integrate the welfare of their employees and the local communities into their business model, while also accounting for environmental sustainability. ESG investing is also known as socially responsible investing and sustainable investing. These funds factor in criteria such as carbon intensity, waste management, water management, gender diversity, human rights, and the ethical code of conduct and tax transparency of the businesses while making their investment decisions.
Are they gaining popularity in India?
The concept is gradually taking root in India. After Avendus, another $1 billion ESG fund is being set up by Mukund Rajan, former brand custodian of the Tata group, along with mutual fund veteran Ajit Dayal and other former Tata employees. In May 2018, SBI Funds Management Ltd renamed its Magnum Equity Fund as Magnum Equity ESG Fund. In April 2007, ABN AMRO mutual fund, now BNP Paribas Asset Management India Ltd, launched India’s first SRI (socially-responsible investment) fund. This was later merged with ABN AMRO Equity Fund. It did not launch any such scheme thereafter.
Why are investors and issuers going the ESG way?
Investors are realizing that integrating environmental, social and governance risks can improve long term returns. Besides, climate change can lead to severe economic consequences.
How big is ESG investing globally?
Approximately 30% of the investable assets globally—more than $20 trillion—included sustainability in their investment analysis, said the ‘HSBC Sustainable Financing And ESG Investing’ report. Overall incorporation of ESG factors in the US doubled to 43% in 2018 from 22% in 2013. Nearly 84-85% of investors in the UK and Europe have an ESG strategy, though only 40% of investors in Asia have one. Only 23.7% of issuers in Asia had an ESG strategy in place, slightly higher than 20.8% in the US.
Does ESG investing lose out on returns?
According to a white paper by BlackRock, investment in ESG based schemes and products need not mean compromising on returns. “Good governance translates to lower corporate risk, we believe, and in turn, a lower cost of doing business. Environment risk management practices and disclosures can potentially lower a firm’s cost of equity, as can strong employee relations and product safety," it said, adding that ESG implementation is likely to bear more fruit over longer horizons.