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As responsible investing is gathering pace in India alongside the global wave, companies have started building environmental, social and governance (ESG) compliance into their operations. According to Kotak Institutional Equities Research, four out of every five Nifty-50 companies are voluntarily making public their ESG compliance data as investor are exploring ESG compliance for long-term sustainability.

“Rising ESG consciousness has led to a promising start to ESG investing in India. With domestic ESG funds average under management (AUM) at 9800 crore in FY2021, we are enthused by India’s steady progress, egged on by global growth in sustainable investing," Sandeep Gupta and Umesh Jain, analysts, Kotak Institutional Equities Research said.

Sustainability reporting is voluntary in India, despite which 41 of the Nifty companies provide detailed sustainability disclosures. The availability of sustainability data will increase further as market regulator Securities and Exchange Board of India (Sebi) recently released guidelines for Business Responsibility and Sustainability Reporting (BRSR), which is voluntary in FY2022 and mandatory from FY2023 for the top 1,000 listed companies.

ESG investing is set to pick up in India, spurred by global growth of 15% CAGR. However, standing at 117 position, India ranks relatively low on sustainability amongst 193 UN members.

According to Kotak Institutional Equities Research, capital goods, financials, health care services, IT services and pharmaceuticals, are best placed for ESG risk-opportunity framework. Consumer staples and telecommunication services with low risk also remain in their preferred list. Automobiles & components, construction materials, electric utilities, metals & mining, oil, gas & consumable fuels are more sensitive sectors on India’s ESG radar.

“IT services remains an enabler for various ESG opportunities and poses low ESG risk. Financials faces some ESG risks but stands to benefit substantially from ESG opportunities in India, particularly the potential offered by financial inclusion, affordable housing and health care insurance. Capital goods face moderate risk and can benefit from the opportunity to innovate and introduce clean tech solutions. The health care sector sees low risk and has vast opportunity to contribute to gaps in domestic health care infrastructure alongside making affordable pharmaceutical products for the global market," Gupta and Jain said.

The S&P 500 ESG Index has outperformed the S&P 500 by 459 basis points (bps) over FY2011- 21. Outperformance is sharper in emerging markets and particularly India, with MSCI EM ESG Leaders Index and MSCI India ESG Leaders Index outperforming their respective benchmarks by 50% and 61% over the same period.

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