The time appears to be ripe for sustainable investment in India because of several reasons, including the emergence of new technologies and the arrival of new companies in the space of sustainable business. This has also subsided the concern that ESG investing makes you compromise on profit to some extent.
Experts point out that the primary objective of sustainable investing is to align financial objectives with broader societal and environmental goals. It considers environmental and social factors such as climate change, resource scarcity, labour standards, human rights, diversity and inclusion, and ethical business practices.
Mint talked to several analysts to understand why it is time to shift focus to sustainable investment and what are some key concerns. Here’s what they said:
Divam Sharma, founder and CEO of Green Portfolio
Sustainable investing has now become mainstream with an estimated of over 40 trillion dollars in assets under management (AUM).
In terms of options, there are green bonds; ESG funds; options focusing on social responsibilities, impact and sustainability; as well as platforms around carbon credit investing.
In equity markets, we see companies focusing on ESG practices benefiting in terms of bringing business efficiencies, lesser penalties, higher goodwill among stakeholders and attracting more capital from sustainability-focused investors with lesser volatility and at higher valuation multiples.
Currently, database providers and rating agencies cover a smaller spectrum of large listed companies for ESG ratings, while we believe that the small and midcap companies are following sustainability practices increasingly which will also be benefitting significantly from their efforts and be rewarded with higher valuations.
We believe that there will be significant returns to be generated along with focusing on sustainability and this is absolutely a great time to focus on this investing principle.
This is not a one size fits and investors can create their focus areas and product preferences to participate in this journey.
Aditya Gaggar, Director of Progressive Shares
Sustainable investing is an investment strategy aimed at achieving long-term financial returns while considering environmental, social, and governance (ESG) risks. This strategy refers to a new facet of comprehensive analysis for making better investment decisions.
In addition to considering ESG as well as cultural risks, turning small and midcaps into bigger market cap companies essentially requires the ethical vision of the management. Management is the alchemist who needs to walk the talk to discover intrinsic values that make an optimistic impact and drive change on a global level with the concept of “triple bottom line” emphasizing on 3Ps i.e. profit, people, and the planet.
Millennials, Gen-Z and Gen Alpha are shrewdly involved in short-term trades as the concept of sustainable savings is gradually vanishing. In the long run, companies which intend to attract investment or coverage will be pressured to improve their ESG scores.
Remember, not all long-term investments are necessarily sustainable and today, the concept of sustainable long-term investment is endangered. Progressive Shares, continues to scout for such sustainable businesses and recommends strong contenders like Tatva Chintan Pharma, Aether Industries, La Opala, HBL Power, GMM Pfaudler, Sudarshan Chemicals and Supreme Petrochem.
S. K. Hozefa, CEO, of Tradeplus Online
Investors should seize the current opportunity to engage in sustainable investments for several compelling reasons. India’s energy demand is experiencing rapid growth, and the government has set forth ambitious targets to reduce carbon emissions and achieve net zero by 2070. Also with plans to generate five million tonnes of green hydrogen annually, the government is directing attention to vital sectors such as urea fertilizer, steel, refineries, and non-urea fertilizers.
Investing in sustainable energy sectors, such as solar, wind, tidal power, battery storage, and suppliers of green energy, can be a smart move. The demand for clean energy is growing, so these industries have a lot of potential for growth. Additionally, investing in clean energy exchange-traded funds (ETFs) can be a good option. These funds allow you to invest in a collection of renewable energy companies, spreading your investment and potentially reducing risk.
Shrey Jain, Founder and CEO of SAS Online
As we all know, sustainable investment refers to investment instruments in which investors seek to generate financial returns while making positive contributions to the environment.
By integrating environmental, social, and corporate governance (ESG) perspectives into traditional investment methods, investors seek to support companies that align with their values and contribute positively to society.
Post Covid pandemic, there has been a notable surge in the growth of ESG investing, both in India and globally. We can see this is gaining popularity among millennial investors who are showing greater emphasis on ESG factors, however, traditional investors are still relatively reluctant to sustainable investing.
Few reasons why investors should consider sustainable investments now – ESG investments have the potential to achieve good performance because companies that focus on ESG factors often adopt sustainability strategies, leading to enhanced operational efficiency, cost savings, lower employee turnover, increased innovation, talent retention, reduced compliance costs, and improved risk management. These factors collectively contribute to boosting shareholder value.
Investing in ESG instruments does not necessitate compromising on financial returns. While returns cannot be guaranteed, ESG funds and investments have the potential to perform equally or even surpass non-ESG funds in terms of their financial performance.
And above all this is the best way to contribute to the community and encourage social responsibility.
Read more: World Environment Day: Top Electric Vehicle stocks to buy
Marc Despallieres, Chief Strategy & Trading Officer, Vantage
The booming ESG landscape has led to an unprecedented rise in green profits and sustainable investing in India. Investors are increasingly providing capital to businesses that exhibit Robust ESG performance. Solar and wind power projects have drawn significant financial inflows from both domestic and foreign investors, making India’s developing renewable energy industry an attractive option for investments.
The growth in real GDP during FY23 is estimated at 7.2 per cent. The government’s proactive stance on clean energy initiatives, coupled with favourable regulatory frameworks, can play a significant role in giving a boost to the economy both ethically and financially.
For FIIs, owing to India’s exponential growth as compared to its global counterparts, the country can be seen as an attractive investment destination. In addition to promoting environmental preservation, green earnings have produced enticing risk-adjusted returns.
For investors seeking ESG-driven stocks in the global space, Nvidia can be a good option. The company specializes in designing and manufacturing high-end graphics processing units (GPUs) for use in data centres, gaming, artificial intelligence, and other high-performance computing applications.
Owing to its dominance in AI, Nvidia stock has continued to soar amid the chipmaker’s solid profits and outsized expectations. The company’s market valuation has surpassed one trillion dollars. By the end of 2025, the company aims to obtain 65 per cent of its global electricity from renewable sources.
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Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 05 Jun 2023, 08:55 AM IST