India should devise its own ESG (environment, social and governance) strategy at least when it comes to environment compliance and not ape the developed countries.
Speaking at the Morningstar ESG Conclave, Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company and Chairman of the Association of Mutual Funds in India, said there is no doubt that India is far ahead of many developed countries in terms of corporate governance and fares much better in terms of social responsibility, thanks to mandatory CSR spending. But when it comes to environment, India cannot follow whatever is prescribed by developed countries, he said.
That is why when Kotak Mahindra AMC became a signatory to the United Nations-supported Principles for Responsible Investment, it took the suggested best practices and tweaked them to suit investments in India.
Echoing Shah, Navneet Munot, Managing Director, HDFC AMC, said global ESG norms discourage investments in companies that produce and uses fossil fuel and in India “we cannot think of producing power without coal at least for the next five years.”
India, with a per capita GDP of $2,000, cannot emulate the ESG norms followed by countries with $10,000 per capita GDP, he added.
Though still at a nascent stage in India, ESG investment is fast catching up, especially with mutual funds pushing it hard with young investors. Inflows in ESG funds increased 76 per cent to ₹3,686 crore in FY21 against ₹2,094 crore in FY20. ESG funds together had an asset base of nearly ₹9,900 crore as of March-end. SBI Magnum Equity ESG Fund with an asset base of ₹3,518 crore is the oldest ESG Fund in India. It was initially a diversified equity fund that reoriented itself into an ESG-compliant fund in 2018.
Some of the new ESG funds launched in the last fiscal year include Aditya Birla Sun Life ESG, ICICI Prudential ESG, Kotak ESG Opportunities, Quant ESG Equity Fund, Invesco India ESG Equity and Mirae Asset ESG Sector Leaders ETF.
The strong inflows speak of the growing investor interest in ESG issues The disruption caused by the Covid pandemic has highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations.