Why Is ESG Investing Gaining Quick Popularity in India

1. Distributed Energy - Is Sustainable investing moving into the mainstream in India May 2021

2. Distributed Energy Overview Distributed Energy is a development and aggregation platform that connects renewable energy projects, primarily solar with funders. We accelerate the deployment of renewable energy (solar) across the developing world.

3. Introduction According to an analysis of the global risks declared by World Economic Forum (WEF), in 2019 four of the top five risks are related to social or environmental issues. Amongst the environmental risks, climate change is one of the greatest threats to communities, businesses and governments all around the world. Over the last decade sustainable investing has gained traction and evolved significantly around the globe. Sustainable investing is based on Environmental, Social and Governance (ESG) standards and is also known as ESG investing. According to India’s own estimates, the country needs to invest around USD 450 billion a year over the next 10 years to meet its urban sustainability and renewable energy target which includes USD 30 billion a year on energy.

4. Rapid Growth of Sustainable Investing According to a report published by financial services Major Morningstar, sustainable funds in India have brought in more than USD 500 million (over ₹3,700 crore) in the COVID-19 crisis largely due to growing investor interest in ESG issues. Impressed by merits of sustainable funds, investors are investing for the long term and are apparently more willing to ignore periods of bad performance. The rapid growth of sustainable investing is driven by consumer’s increasing awareness and conscious choice for their investments. By 2017, ESG funds accounted for USD 31 trillion or 32% of the global investment but only 0.1% – USD 30 billion – was invested in India, despite its position as the 6th largest economy. This is further iterated in an Oxfam-cKinetics report ‘Drops before the Rain’, estimating the capital deployed with Sustainable strategies in India is around ~USD30 billion (₹1,962 billion).

5. Factors Impacting Growth of ESG Investments in India • India has committed to achieve the Sustainable Development Goals to drive its agenda of development without destruction to the environment. The International Finance Corporation (IFC) in its report ‘Climate Investment Opportunities in South Asia’ has estimated an investment opportunity of USD 3.1 trillion in India. • Global ESG funds are investing in India and as per Global Sustainable Investment Alliance (GSIA), 41 Global ESG funds have invested on average 25% of their funds in Indian equities. • Earlier, domestic investors played limited role in sustainable investments, however, the trend is changing and many local ESG funds are being launched in the Indian market. • In India, various sustainability oriented indices i.e. S&P BSE 100 ESG Index, NIFTY 100 Enhanced ESG Index, etc are being used to track, monitor, assess and report sustainable performance of companies. • India is focusing on the policy reforms to drive investments in emerging sectors like renewable energy. This is leading to the development of companies like Distributed Energy which offers potential investment platforms for renewable energy resources like solar.

6. Conclusion Despite India’s steps towards promoting sustainable investing, certain challenges such as the mindset of investors & asset managers to focus on maximization of returns, lack of market standards, lack of track record of ESG funds and less technical capacities limit the growth of sustainable investments. Hence, there is a need to raise awareness all-round so as to include social and environmental considerations and inform investors/ businesses about the benefits of sustainable investing.

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