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    What is ESG Investing?


    Table of Contents:

    1. Introduction
    2. ESG Investing Facts & Figures
    3. An overview of ESG Investing
    4. The need for ESG Investing
    5. Future of ESG Investing in India
    6. How to make a career in ESG?
    7. Conclusion


    The thread of any future-proof business, today, is largely jutting on the commitment towards sustainability. Organisations are certainly getting mindful about the need for environmental, social and governance (ESG) work structure. Also, an early realisation to build resilience with a secure corporate governance, diversity & inclusion, sustainable procurement and a conscious resource consumption is noticed.

    In recent times, the concept of ESG investing has escalated dramatically in popularity.A report suggested that the count of sustainable funds available to U.S investors increased by 36% from 2020-2021. The wide-ranging trends such as climate change risk, fear of biodiversity loss, social inequalities and the road to net zero; moulding the ESG investing world are now very well recognised. While global ESG space is anticipated to exceed $53 trillion by 2025, India’s ESG investments are expected to increase by 30% by 2030.

    ESG Investing Facts & Figures:

    • India is amongst the few countries to have a corporate social responsibility (CSR) mandate. Companies with a net worth of Rs 5 billion or more are obligated to spend 2% of their net profit on CSR initiatives, making India a major contributor towards sustainability solutions.
    • At present, ESG-focused investments are estimated at over $30 trillion, globally.
    • India aims at mobilising $ 1 trillion towards ESG priorities, mainly the climate transition, by 2030. In the same time span, approximately $ 8.2 trillion of investable retail wealth is expected to channel into sustainable investments.
    • Across India, 33% of investors aim at working towards a positive social impact, 46% of them are journeying to restore the environment and 40% are looking to plant their money against ESG risks.

    An overview of ESG Investing

    ESG investing refers to an investment strategy that prioritises environmental, social and governance factors. It is designed for people who want to put their money in mutual funds or sustainable stocks offered by companies who are consciously working to make a positive impact in the society/world. It is a financial game plan that largely depicts sustainable investing; keeping in mind the economy, human well being and environment.

    • Environmental impact:

      The principles of environmental impact include a company’s energy and water efficiency, climate change, resource depletion, greenhouse gas emissions, biodiversity, deforestation, waste management, air pollution and more. These environmental considerations will also help companies manage these risks.

    • Social impact:

      Here’s a factor that emphasises on a company’s relationship with the society and community. Socially responsible companies donate significantly a percentage of its profits to the local community and encourage employees for volunteer work. Also, socially responsible investment strategies are far away from taking unethical advantage of employees. The principles focus on anti child labour practices, human rights, ethical product sourcing, data security, sexual harassment policies, customer satisfaction and more.

    • Governance impact:

      The governance refers to how a company is led and managed; and how it can drive a positive change. It involves everything from issues surrounding shareholder rights, aligning to their expectations, promoting transparency and managing the internal control system. Governance factors touch on the internal corruption, political contributions, large-scale lawsuits, executive pay, corporate conduct, whistle blower schemes, lobbying and more.

    The need for ESG Investing

    Here’s to throwing light on the tangible benefits of the ESG framework. The term ESG was first coined in a 2004 report titled ‘Who Cares Wins’, and since then its fortunes are gradually growing. To put it simply, a fivefold growth google search since 2019 for ESG.

    Point to be noted, strong ESG practices can benefit investors and companies.

    1. Reduced risk

    Studies suggest that sustainable investment consistently offers reduced risk as compared to traditional ones. 2008, 2009, 2015 and 2018 depicted turbulent markets and signalled downside deviation and a high potential for loss with traditional funds. In the time of a catastrophic occasion, ESG investments held up better with great management and less deprivation.

    2. High returns

    No second thoughts, sustainable funds can outperform conventional ones. ESG metrics have largely become important to employees, consumers and lenders. With a higher demand, companies that focus on sustainability are anticipated to perform better. Companies that are proactive, socially and environmentally are important for the future.

    3. Loyal customers

    Accenture’s 2021 survey stated that post pandemic, about 50% of consumers are more aligned to their values and have subjected it their priority now. Consumers are now getting socially more conscious and are willing to pay extra for those who are doing good to the environment and society.

    4. Sustainable operations

    Companies that are working in ESG policies can comfortably adapt to an ever-changing perspective. Sooner or later every establishment will be bound to deal with ESG practices in the form of compliance, legal or reputational concerns.

    Businesses that have incorporated ESG strategies are enjoying sustainable operations such as energy consumption, waste management and overall cost-saving opportunism, making it a win-win situation.

    5. A financial boom

    Any form of ESG enactment can elevate a company’s financial performance to a great extent. Even a small practice like going paperless or stepping into an energy-efficient zone can enhance a company’s ROI largely. ESG compliant companies are less prone to any loss, penalty or risk.

    Future of ESG Investing in India

    In a nutshell, sustainable financing is about striking the right balance of investing rightly without compromising any long-term goal and continuing to carry out operations in the interest of consumers, stakeholders and everyone else.

    A report states that sustainable financing by Indian private equity and venture capital firms are anticipated to reach $ 125 billion by 2026. Green initiatives, conscious consumer and favourable government policies are some of the driving factors.

    ESG’s influence goes way beyond the financial parameters. To a great extent, it escalates a company’s face value and makes it an inviting investment platform.

    Though the ESG ecosystem in India is in the early stages, it is growing rapidly. A study says that the ESG industry in India sprouted by 468% in the last three years. This led to an increase in jobs by 154%, widening the career options.

    How to make a career in ESG?

    • Begin with identifying your area of interest- it could be joining an EV start-up or working in the field of clean technology
    • Educate yourself with a valuable ESG course
    • Build on the soft skills such as creativity, adaptability, critical thinking and more. Candidates interested in the technology front must absorb the required technical and engineering skills
    • Once you are ready, get ready to reach out to companies that have clear sustainable goals

    One Last Thought:

    Though ESG Investing may sound like a buzzword, its footprint and significance is evidently seen in the current trends. For instance, a conscious effort towards green entrepreneurship is largely contributing towards climatic mishaps and helping control global warming.

    India is steadily matching the global standards of ESG strategies, thanks to the regulatory push by SEBI. ESG in India is more than ticking boxes. Investors are now demanding products that are people-sensitive, environmentally friendly and thoughtful about corporate governance. While making a significant change in the society, ESG investing is also making room for immense opportunities.

    Despite the several challenges, the future of sustainable investing in India looks promising. Consumers, investors, shareholders, employees and regulators are certainly clamouring for transparency in the system.

    In an immersive environment of thought-provoking discussions, Atria University conducted ‘The Green Future Summit’ to discuss what is ESG and lay an ideal blueprint for the future. Our sole motto was to familiarise people about the environmental, social and governance responsibilities and initiatives, which is also an enduring future.

    Atria Admissions Team

    February 6, 2023

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