Many Indian companies are now becoming more and more aware of the environment. It has introduced a new theme with respect to Environment, Social and Governance (ESG) to raise awareness. Growing environmental issues, social injustice and better disclosure requirements have led to increased investment in firms that pay more attention to environmental, social and governance issues.
ESG stocks are company stocks that focus on sustainability and environmental concerns, rather than considering only its bottom line. Their aim is to achieve profit but with minimal impact on the environment. More and more companies are making ESG disclosures in their reports these days, showing how they have helped to raise awareness and contribute to the betterment of society. Such companies are focusing more on sustainable alternatives, more eco-friendly operations, minimizing the impact on biodiversity, etc.
Many big names including Infosys, TCS, HDFC Bank, HDFC, Havells, UltraTech Cement, Godrej Consumer, L&T, Titan, Adani Enterprises, Tata Power etc are contributing heavily to this new theme.
Godrej Consumer Products and Havells India are among the 12 Indian companies that are part of the Dow Jones Sustainability Index (DJSI), which is used to measure environmental, social and governance (ESG) performance.
The ESG first came into focus in the United Nations Global Compact Report released in 2005. This pointed out the need to combine ESG factors in equity markets to benefit both companies and the environment. Since then, the ESG criteria have been used to identify such shares. It is no longer a niche concept. More and more companies are looking to contribute to the betterment of the environment and society.
ESG as an investment prospect
Generally, investors focus on the returns, balance sheet, earnings of the firm before investing in their stocks. But now, the attention of the world is shifting towards issues like climate change, deforestation, carbon emissions etc. There is an urgent need to provide social change and financial support on such issues. Therefore, regulators around the world are pushing companies to contribute more to better disclosure of these concerns and their contributions.
Even investors want to associate with firms that are responsible and working towards sustainability. Companies that are making high profits but low on ESG scoring are losing prominence. More and more investors are investing in firms that are moving towards more eco-friendly and green solutions. It has become a requirement of the future and thus exhibits immense potential.
If you want to identify ESG firms to invest in, rating agency CRISIL usually comes up with ESG scores for Indian firms based on the knowledge available in the public domain. Scores vary from 1-100 with 100 being the best ESG performance. A high ESG score not only makes a company a good potential investment but also shows that the firm is working for the betterment of the society.
Several ESG funds are now available in the market to choose from. Globally, assets under management (AUM) by ESG funds are over $35 trillion. In India this figure is around 115 billion by July 2021, since this concept is pretty new here.
While ESG is still an upcoming topic in India, it is a very demanding investment topic globally, especially in the post-Covid world.
Given the increase in activism and sustainable investing, it is time for every investor to consider investing in this topic as more and more companies are now establishing good corporate social responsibility. ESG investments will pave the way for a sustainable and profitable future.
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