India, in alignment with numerous developed countries, is intensifying its efforts to foster growth based on globally accepted principles of sustainable economic development. This includes the implementation of various regulatory controls and processes such as the Energy Conservation (Amendment) Bill 2022 and the Business Responsibility and Sustainability Report (BRSR). The former mandates the mandatory transition from fuel-based energy sources to renewable options like green hydrogen, biomass, ethanol, hydro, and solar among users of energy such as the manufacturing industry, large commercial establishments, and large residential complexes. The BRSR requires listed companies to report on their sustainable contributions across governance, environmental, social, customer, supply chain, and human rights factors.
India’s progression towards a more sustainable operational landscape spanning industry, services, and agriculture sectors is paving the way for investment opportunities for Indian entrepreneurs and investors alike. Many businesses have recognised the significance of sustainability and are committed to practices that align with global initiatives such as the Paris Climate Agreement and the United Nations Sustainable Development Goals. Concepts like ESG (Environmental, Social, and Governance), Clean Energy, and Climate Control are no longer just noble aspirations but have become intersections of sustainability and profitability.
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The UN’s 2023 Global Sustainable Development Report reveals that the world is significantly behind on achieving its 2030 SDG targets, largely due to the pandemic-induced delays. There’s also noticeable resistance, particularly among US institutional investors, despite the incorporation of governance factors in their assessment criteria, when making investing decisions. Conversely, EU investors are more inclined to support initiatives by investing in companies working towards achieving net-zero greenhouse gas emissions in compliance with legislation.
Globally, an estimated investment of around USD 4.2 trillion annually is required to meet the UN’s Sustainable Development Goals (SDGs). This appears attainable given that the total financial assets industry (comprising banks, asset managers, and institutional investors) stands at approximately USD 379 trillion. By the end of 2022, global investments in sustainable assets reached USD 30.3 trillion, with non-US markets exhibiting a 20% growth in assets. While there’s still a considerable journey ahead, sustainable investments have become an undeniable force in capital markets, demonstrating increasing strength year after year.
India, poised at the brink of a potentially significant multi-decade growth trajectory, presents numerous investment avenues to advance its commitment to sustainable development. This will involve commitments from investment managers, individual investors, capital allocators and support and guidance from Regulators.
Managers are adopting diverse sustainability aspects in their investment strategies, including factor-based screening, ESG/BRSR norm integration, and funding companies engaged in impact investing. However, to address concerns like greenwashing, the country will require an efficient and reliable control and audit system to verify BRSR reports, ideally managed by a not-for-profit government organization like AMFI. SEBI’s regulation of BRSR reporting for the top 1000 stock exchange listed companies by 2027 (top 250 companies by 2024) underscores the importance of comprehensive coverage across all segments of the capital markets, including fixed income, venture capital, and private equity funds.
Millennials in India, like their global counterparts, are actively embracing responsible investing principles. Having witnessed the impacts of climate change firsthand, this generation is keen on investing with a focus on promoting sustainable development. They hold the key to a better, more sustainable future and should consider investing for “Profits with a Purpose.”
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Companies investing in clean and green businesses stand to benefit in the long term, making capital allocation in such areas a strategic consideration. Opportunities abound in both public and private markets, ranging from public transport, private vehicles, solar energy, chemicals, green construction, recycled infrastructure materials, agriculture (including water conservation, vertical farming, agroforestry, and biodynamic farming), to data analytics (encompassing digitisation and AI).
Ultra-High Net Worth Individuals (UHNIs) and Family Offices can play a pivotal role in increasing allocations towards sustainable investments. Starting with a modest 5% exposure to such investments, the ultimate goal over 3-5 years should be to allocate 25-30% of investments to companies and ventures actively employing technologies to reduce their carbon footprint. Help can be taken from bespoke wealth managers and multi-family offices who offer tailored investment opportunities, assessing the ESG commitments of investee companies using research, models, and scores to monitor and benchmark investments.
Allocating capital responsibly is a powerful tool that should be leveraged to drive investments with a sense of responsibility. Choosing to invest for impact represents the most sustainable approach for investors. As Peter Drucker famously said, “The best way to predict the future is to create it.” Let fiscal year 2024-25 mark the commencement of our efforts towards creating a sustainable future through responsible investing principles.
