Navigating the Pathway - Environmental, Social and Governance
ESG Integration - India
The buy-in for ESG investing in India has been slow over the last few years. While there are some early movers, most investment managers are not witnessing demand for ESG products or asset owners with policies that explicitly ask for ESG practices to be incorporated in an investment manager’s process. Where there is demand, it is predominantly from multilateral institutions and European investors.
About two-thirds of financial professionals in India feel that corporate governance issues “often” or “always” impact share prices compared to one-third for environmental and social issues. In five years’ time, however, well over half of those surveyed by CFA Institute, feel that environmental issues will “often” or “always” impact share prices and bond yields.
The main barriers to equity and fixed-income integration in India are a limited understanding of ESG issues, a lack of company culture around ESG integration and a lack of client demand. While the awareness is increasing due to foreign investors, there isn’t the same level of interest from local investors. ESG investing is not receiving attention from the larger institutional investors in the Indian market, which has made a difference in other markets.
Qualitative Analysis versus Quantitative Analysis?
ESG integration is commonly implemented by using approaches and analysis that are more qualitative than quantitative. Increasingly, however, ESG issues are being quantified and integrated into company / issuer valuations.?
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Evaluating ESG Impact
ESG factors are incorporated on a top-down basis by looking at macro trends to identify investment risks or opportunities by identifying companies aligned with ESG macro themes: energy & power technologies, waste management and pollution control, water & waste-water solutions & health & well-being. As world transitions to a more sustainable economy, investing in these themes positions the portfolio to benefit from these long-term trends, which provide long-term secular growth.?