A chat series with leaders and practitioners across industries, sector experts, and policymakers aims to focus the klieg light on key trends and challenges with regards to ESG.
Focus areas to attract global ESG-aligned capital to India
Guest Speaker: Kamran Khan, Managing Director, Head of ESG, Asia Pacific, Deutsche Bank
Summary
ESG strategy must be contextualized to the specific country keeping in mind its challenges, its development goals and growth trajectory, and its resources. ‘Just transition’ [greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities, and leaving no one behind] will be an important theme for India to consider as it moves towards transitioning its economy to become greener and resource efficient
Financed emissions [indirect greenhouse gas emissions attributable to financial institutions due to their involvement in providing capital or financing to the original emitter] is an emerging best practice among financial institutions in Europe. Therefore, financial institutions are looking to avoid financing heavy emitters and companies in the hard-to-abate sectors in a bid to reduce their overall financed emissions
Developing suitable ESG-related policies and having adequate controls and mechanisms to implement those policies are the next part of best practices followed by financial institutions. Helping and advising clients on ways to improve their ESG performance and transition towards sustainable practices is third part of the best practice followed by financial institutions globally
For corporates, ‘do no harm’ is the bare minimum principle to be followed from an ESG point of view whilst striving to work towards ‘doing more good’ to create opportunity and value (for e.g. by selling more sustainable products like healthy food alternatives)
MSMEs specifically face challenges with regards to financial constraints and technical capacities and require more time, subsidy, and technical support to make the transition. Enabling this sector through assistance programs and schemes as well as collaborative platforms or industry bodies that provide answers on reducing their negative impact would be crucial to bring them up the curve in a sustainable and just manner
Given India’s development goals, conversations around investments in hard-to-abate sectors must be more nuanced. However, given how the world is transitioning, such sectors have a long-term financial risk/stranded asset risk element which financial institutions are not factoring at this time when they give out loans over a 15–20-year time horizon.
Meet The Expert-ESG Series: Focus areas to attract global ESG-aligned capital to India
Bringing the 'S' in ESG to the fore - A lender's perspective
Guest Speaker: Manish Kumar, Head-ESG & CSR, ICICI Bank Limited, India
Summary
On the social front, a financial institution’s direct impact through its operations on employees, communities and customers as well as its indirect impact through its lending activities become crucial
Sub-sectors like affordable housing, affordable healthcare, education, women entrepreneurship, services in under-served regions of the country are important themes for banks to look at while building their portfolio to be able to demonstrate real-world social impact
Banks would have to drive the ESG agenda by hand-holding their borrowers in their ESG journey, make the borrowers understand the importance and benefits of ESG implementation, including access to finance and export-readiness
Sectors that are positive on the environment may not always have a positive social impact and vice-versa, sectors that are positive from a social point of view may not always have a positive environmental impact. Lenders would need to have a holistic ESG perspective while making decisions
Social bonds (debt instruments used to finance or refinance social projects), with stringent end-use monitoring, are a good way to raise capital for projects/activities that have socially beneficial implications.
Meet The Expert-ESG Series: Bringing the 'S' in ESG to the fore - A lender's perspective
The role of asset managers in ESG and stewardship
Guest Speaker: Chirag Mehta, CIO, Quantum Asset Management Company
Summary
Despite conversations around ESG slowing down (in some parts of the world), ESG is moving in the right direction as the underlying reasons why ESG is to be implemented haven’t changed
Active stewardship and especially systemic stewardship (where engagement is done at industry body-level and not individual company-level) are emerging as important tools for change globally
Active engagement in India is very limited and happening in silos. A concerted, collaborative approach through an India Sustainable Investment Forum (SIF) is required to yield meaningful results
Global asset owners with their own portfolio decarbonization targets expect asset managers to start putting decarbonization targets and being prepared for these requirements will hold them in good stead and help in attracting capital
Intent to change/improve, demonstrating tangible progress and credible, verified plans to decarbonize form the foundations to attract ESG-aligned capital for companies, even if they are in hard-to-abate sectors
ESG investors should have the right in-house capacities, frameworks and mechanisms to cross-check company data and ask them the tough questions to be able to differentiate themselves from other investors
Engagement with companies either to get more information and clarifications or to improve their ESG quotient can help investors reap benefits in terms of risk avoidance and/or alpha generation
Retail investors need to be enticed into the ESG funds market with more awareness campaigns and a concerted effort by all mutual funds together
As an antidote to greenwashing claims, ESG funds should show evidence of real-world impact that their fund has been able to demonstrate in terms of E,S, and G parameters
Meet The Expert - ESG Series - The role of asset managers in ESG and stewardship
Is ESG a force for real change? Or is it a mere tick box exercise?
Guest Speaker: Rohit Shimpi, Fund Manager, SBI Fund Management & Priyanka Dhingra, ESG Analyst, SBI Fund Management
Summary
‘Transition’ is becoming the key word for emerging markets when it comes to ESG and sustainability
Global initiatives like Climate Action 100+ are playing an important role in greening the target companies through collaboration between investors. 6 Indian companies feature in this list
Investors should dig deeper and ask companies who have set net zero or decarbonization targets to disclose short and mid term targets and roadmaps to achieving them
ESG should be an integral part of due diligence and monitoring processes and not just an add-on to traditional analysis as it makes business sense both from a risk and opportunity point of view
ESG scores and company’s intent to improve are key factors in stock selection and inclusion
The intent of the regulator has been to avoid greenwashing in the ESG market and it has tackled it through 3 pillars – namely ESG data (BRSR), ESG ratings (amendment to the CRA Act) and investment (ESG funds)
Portfolio level ESG scores of every ESG fund and stewardship reports (as disclosed on their individual website) could be a good starting point for retail investors to understand the ESG impact each product is creating
Deep engagements with investee companies both through conversations and asking questions as well as through voting helps steward companies on various aspects like public disclosures, board independence or any other issues that are topical and material to the company
Good ESG fund managers should keep themselves to new ideas and themes to be successful in this space as this is a very dynamic industry. Good ESG analysts need to learn to talk the same language as their financial analyst counterparts to be able to communicate the materiality of an ESG issue on the stock
Meet The Expert - ESG Series - Is ESG a force for real change? Or is it a mere tick box exercise?
