Why am I bullish about ESG?

When VCs interact with Founders, one common question they ask is “where else have you seen this work? Is there a global example, or validation of such a business?”. As sustainability and ESG topics are becoming the rage, and multiple consultants and saas providers are lining up, I attempt to address the same question - “where else has ESG / sustainability taken off?”.

The short answer is - the EU is the frontrunner in all matters related to UNSD Goals, or ESG. Overall developed markets (including US, UK, Australia) are surely showing some interest, but with a lesser level of intensity, as compared to the EU. So, there is certainly a global validation that “ESG / Sustainability” needs exist in the market.

Let me elaborate, taking into consideration different types of stakeholders. You could say this is my thesis around “Why am I bullish about ESG”.

Customers:- There is a reason I am starting with end customers (and not the Government, which is the usual suspect in such matters). The point I am trying to drive home is… this is not merely a compliance activity enforced by regulatory action. The end customers are worried about a sustainable planet, they are demanding better products and services from the businesses, and are willing to pay for it.?

A dear friend of mine, Rajeev Sinha, was exporting clothes and apparel to the EU c. 2017. Even back in those days, he mentioned that the customers in EU care about “sustainably sourced” products; he had seen brands selling 2 different heaps…one which was certified to be sustainably sourced, and the other had no such claim; significant proportion of customers went for the “sustainably sourced” products, and were willing to pay a premium for it.?

In a recent conversation with another friend Riju Ray, he mentioned that his family is trying to cut down on meat consumption after realizing the carbon foot-print implications. He has not gone full vegan yet, but the change in consumer preference - not due to personal taste or health-related choices, but to environmental considerations - was, frankly, shocking.?

If you don’t want to look at anecdotal evidence, let’s discuss industry reports.?

Unilever achieved fantastic earnings growth through its ‘Sustainable Living Brands’ portfolio. These brands embodied a strong social and environmental purpose.

In Real Estate (which, by the way, contributes to 40% of global carbon emissions), customers are willing to pay a premium for Green Buildings, as per CBRE. There is a similar report by JLL that talks about customers in Asia-Pacific willing to pay a premium rent for green real estate.?

Forget other markets; Indian consumers are willing to pay a premium of 20%, for sustainable products.?

In case you still don’t get it, world over, consumers have shown an interest in products and services that are more sustainable; and the same trend seems to be catching up in India too.

{This was the first part in my series of posts around “Why am I bullish about ESG?”. In the next part, I will talk about investors and lenders }