Green is the Colour of Investment for Future

ESG denotes using environmental, social and governance components to appraise companies and countries on how far off ultra-modern they are with sustainability. Environment crucially aims at conservation and preservation of natural resources. When it comes to social, the core foundation of any business is its people, and for the companies to have socially emerged they need to treat their employees with maximum respect and all to take care of their prosperity. And lastly, governance is the pedestal, the substructure by which the company is being judged.

Why is ESG investing important?

ESG makes a difference because it provides the mechanism to initiate plans that contemplates their principles, but more significantly, ESG can help impel to make a difference.

Gratitude to ESG, that companies are clasped liable for their exertion and are also commanded to do one step ahead.

Most importantly, businesses have to be actively involved in finding ways to increase their positive endowment to the society and environment, or they should be afraid of missing out on opportunities if they recommence avoiding such issues.

How are Indian companies adopting ESG practices?

Implementation of ESG helps deduct the cost, it brings new consumers, access to new talent, and also new sources of revenue. It is another tremble for companies and businesses to become more irrepressible.

Taking the prompt, few Indian companies have accompanied in ESG-related approach and dynamism.

Domestic oil companies in India have started ethanol blending in petrol. Ethanol is a byproduct of sugarcane, wherein sugarcane is crushed to produce ethanol and thereby reducing the import dependency. We will use ethanol in petrol and thus reduce imports and will lead to lower pollution as well.

A carbon-negative roadmap has been committed by Dalmia Cements. A pipe conveyor belt has been built by JSW to transport 36 MT of iron ore every year, in a proffer to cut pollution from truck transportation.

Innovation in ESG

Some firms are re-thinking about ESG disruption. Their thesis is that corporate and government efforts may not suffice. So they are relying on crowdsourcing to build a sustainability platform community. A foundation started three years ago in India – Earthr.org – that is trying to solve sustainability challenges by encouraging entrepreneurs to work on such problems in a scalable new way. Inspired by Grameen bank, Aravind Eye Care, they know that social businesses can solve real issues at scale.

Earthr.Org is like a Quora or Wikipedia meets Kickstarter, for sustainability issues.

What are the challenges?

In India, climate change is real and also our challenges in the process of achieving ESG are particularly grave. We can say for now that the previous and the current monsoon seasons may have been normal, or likely to be close to normal, but such classification doesn’t contemplate the floods in different states and also the mountain states or the droughts in parts of Maharashtra, Tamil Nadu and Karnataka all happening concomitantly.

India has nine out of the 10 most polluted cities in the world. When it comes to air pollution-related deaths, we rank among the top three nations. But if we see, air quality is one aspect of our climate change dilemma. Even if we plan to solve the air pollution-related problems tomorrow, cities like Chennai and Mumbai would still be at peril from rising sea levels.

Investment ideas for ESG

In the process of investment towards ESG, India has started taking up initiatives and multiple asset management companies have launched ESG funds in India. Axis AMC launched the Axis ESG fund in February 2020 and also SBI restored its equity fund as an ESG fund in 2018. Mirae Asset ESG Exchange Traded Fund offers a low-cost method of investing in ESG companies. This particular ETF makes a difference as it is the only passive instrument in India tracking the Nifty 100 ESG Sector Leaders index. Being an ETF, the costs (expense ratio) connected to this fund are very low.

While the AMCs who have launched ESG funds do stock selection from the Nifty ESG index, there is a limited track record of the underlying indices. Investors should consider investing in the ESG theme via SIPs at various intervals rather than allocating a large chunk of money at one go. 

Also, we can establish our ESG portfolio of stocks, but the only thing is, it will require us to be determined towards it and also dedicate a significant amount of energy and time towards researching these companies.

The author is the CEO of Tavaga Advisory Services

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.