Stock Market

ESG investing catches investor fancy, forcing India Inc to become compliant

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By DK AggarwalInvesting in the equity market is not only about studying numbers; it is also about judging the qualitative factors, among which investors are increasingly beginning to realise ESG – i.e.

environmental, social and governance – issues play a key role in the way a business grows and creates value for its investors. Today, social and environmental concerns of a business are as important as financial performance and governance.

Now, investors look for sustainable return on investment.

And ESG investing has become a key criterion to replace the question ‘what are the returns?’ with ‘how much sustainable return’? To note, ESG is the fastest growing investment concept globally, with some $22 trillion, which is nearly 25 per cent of all institutional investment now branded as ESG. The Indian stock market has been working on this ESG theme for long.

Eventually, the ESG aspects, which are non-financial in nature, have financial consequences, adversely affecting share prices of the company. In the past few years, there have been many instances in the Indian stock market, where companies have failed to comply with good ESG practices and markets took cognizance of the same and punished the stocks.

These include the meltdowns at Manpasand, PC Jewellers and the like. Even recently, we have seen that environmental factors triggering policy pushback for companies such as NBCC and HCC; all of which have spooked the investor confidence on these counters. As corporate governance issues surface with increasing frequency, better sustainability practices are becoming more important not just for companies but also investors.

As we move towards better maturity of the market and higher investor participation, institutional investors have become more vigilant about good corporate practices. And companies with robust business practices today demonstrate better operational performance.

Going forward, it will force Indian companies to become more ESG-compliant. Chairman and MD, SMC Investments and Advisors




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