There’s an emerging trend of sustainable investing by incorporating non-financial factors like Environmental, Social, and Governance (ESG) across the globe. With a slew of ESG-focused funds launched in India, there’s an opportunity for investors to grow their money via funds that invest in environment-friendly and socially responsible companies.
In an exclusive session titled “The present and future of sustainable investing” , Chirag Mehta, Senior Fund Manager – Alternative Investments, Quantum AMC explained ESG as a style of investing and how sustainable investing has translated into good returns for investors across the globe.
The coronavirus pandemic made people move towards sustainable investment options and made them adopt ESG to understand the interconnectedness of sustainability and the financial system.
“The pandemic has led to the acceleration of the adaptation of ESG. Earlier, the norm was anything related to the financial crisis will lead to systemic risk to the markets. Now, because of the Covid pandemic, there has also been a physical risk assessed by the markets. Today, we are not only looking at financial risks but also other physical risks that can impact the financial markets. Companies not only need to look at mitigation of risks but capitalise on the opportunities ESG investing can provide,’ says Mehta.
With many more ESG funds lined up, the trend seems to be catching up in India. During a special session hosted by Economictimes.com in association with Quantum AMC, Mehta shared insights about ESG and how investors can benefit from this.
To understand why adapting ESG is important for Indian companies and investors alike, we first need to know how the West adopted this style of investing and how it is evolving in India.
“ESG helps to achieve the Triple bottom line i.e the 3 P’s benefit and which is good for the Planet, People, and Profits. Companies adopting good ESG practices are more efficient and competitive and have a culture that builds trust and fosters innovation. This has been a big change in companies in the West. Companies have saved millions of dollars by looking at how they could transform themselves and being more efficient at the same time. Reducing carbon footprints, for instance, would mean utilising less energy for a company. There is a direct financial impact on companies’ profits because of ESG compliance,” adds Mehta.
ESG Funds can be ideal for individuals looking for alternative investments and global opportunities. Also, investors looking to explore the concept of sustainable investing including the conscious investors seeking environment-friendly solutions can also look at ESG investing.
Chirag Mehta also shared a few good examples of ESG translating into good returns for investors.
- Environment: Companies in the highly polluting cement sector, need to be more environmentally focused and try to reduce the clinker factor to ensure that pollution levels are lower in that company during the production process. Most cement companies in India have a lower carbon footprint as compared to the West or other large companies in Europe.
- Social: Many paint companies in India, as part of the social contribution, impart training in rural areas for painting houses, buildings and address the problem of unemployment mostly to the women of that area. With this, they not only give women a higher-paying job but also end up making a business out of it.
- Governance: Some Indian grown FMCG companies command an equal valuation premium as compared to many of the MNCs because of their great governance standards despite being promotor owned entities
Mehta also highlighted how Quantum AMC had adopted ESG and how investors should choose the right fund when it comes to sustainable investing. Click here to watch the full session.