Page 48 - Banking Finance August 2022

ARTICLE

applicable to top 1000 listed companies clearly indicates the
preference of regulators towards ESG.

The growth of the ESG market is based on cumulative
research findings that adherence to ESG standards does not
damage the profitability of investments rather it brings
positive results for both the investors and corporates. A
company/organisation with fair and transparent ethical
governance engenders government support and attracts
least regulatory intervention. Better compliance risk
management reduces the probability of undesired events like
litigation, fraud, and other high intensity risk events. The
possibility of regulatory sanctions, punitive action by
government on account of environmental issues and taxation
gets reduced as the companies will behave more responsibly
and is aware of the impact of their ESG negative actions.
Higher employee satisfaction improves productivity and growing concerns for environmental sustainability. India has
lowers attrition rate. Sensitivity to climate change, societal around 17% of world's population but only 2.4% of the world
issues and governance culture ensures company's future land creating pressure on environment. 11 Indian cities
earnings and growth, and sustainability creates better figure in the top 12 polluted cities of the world. India is in
wealth for the investors. the list of top 10 most vulnerable countries to climate risk
released by German watch a Bonn based think-tank. (Global
Through several studies, it has been established that ESG Climate Risk Index 2020). Gender discrimination is still visible,
practices have resulted into better operational efficiency, and poverty along with illiteracy is affecting India adversely.
better stock performance and reduced cost of capital. ESG Income inequality is a major concern.
companies carry higher valuation due to increased trust
level of investors and are preferred due to low volatility and However, India has strong potential to attract huge capital
lower betas. The Nifty 100 ESG Index has shown a better investment from all over the world, which can be realised
performance than the Nifty 100, its parent index. only if our corporates have strong governance framework
as overseas investors prefer fair, transparent, and
ESG investing concept is catching fast. ESG funds have responsible governance. During the last two decades, India
become popular around the world and growing globally. An has witnessed several corporate frauds which has raised
estimate by Bloomberg suggests ESG investing to grow concerns in the minds of overseas investors towards the
@15% and may touch $ 53 trillion by 2025 representing quality of corporate governance in India. Indian companies
more than one third of the projected $140.5 trillion under have started realising the importance of ESG concept and
AUM. Every day a new ESG fund is being launched. ESG funds awareness is increasing in shareholders and rising millennial
in India received an inflow of Rs 3686 crores in 2020-21. ESG population of the country who are the potential investors.
investing is being promoted by governments and
international organizations through developing various Indian regulators are also in action to ensure better ESG
mechanisms, taxonomies to identify investments as standards in Indian companies as India as a country is
conforming to ESG principles, and policies to incentivize ESG- exposed to environmental and social issues. Indian rating
conforming securities. agencies have also started evaluating Indian companies by
assigning ESG scores. Recently CRISIL Ltd. has published the
The concept of ESG investing in India is at a nascent stage ESG scores of 225 companies in India.
but growing fast and is more relevant for India where
massive new infrastructure investment is taking place amid Though investors and investment professionals are

48 | 2022 | AUGUST | BANKING FINANCE