Page 32 - Insurance Times April 2020

HD: 38 of the NIFTY 100 companies are signatories to CDP
Although most of the ESG tracking seems to be
Worldwide (Carbon Disclosure Project), which shows that
in chase of long-term returns and attracting climate change is a focus for corporate India. However, only
capital, there is a coterie of asset managers that in 9 companies have the sustainability objectives been
embedded on executive directors' performance goals. One
believe ESG factors do expose investors to
could conclude therefore that while climate change is being
uncompensated risks addressed through business, the focus on this at board
levels is still limited.
PG: While pressure is growing on fund managers to pay The increasing issuances of green bonds is also testimony to
greater attention to environmental and social issues, is the fact that not just companies, but investors too are
there a realisation that ESG and impact investing can showing an increased focus on sustainability.
generate strong financial returns as well?
The Indian exchanges consider their dominant role to be
According to Bloomberg – nine of the biggest ESG mutual one of providing a platform for exchange. They do not
funds in the U.S. outperformed the Standard & Poor's 500 pursue an agenda, believing that this may compromise their
Index last year, and seven of them beat their market position as an unbiased market fiduciary. Therefore, the first
benchmarks over the past five step will be for exchanges (and perhaps the regulators) to
years. redefine their role as influencers of Indian markets.
HD: Several domestic funds are now focused on ESG. We PG: Indian Corporate Governance Scorecard framework
believe the asset managers are clearly seeing the value of developed by you jointly with the International Finance
ESG, and in several instances also being compelled by their Corporation and the BSE – to what extent can it facilitate
own investors / unit holders, to focus on ESG. With underwriting management liability exposures of individual
stewardship codes now becoming mandatory for almost corporates rated here?
all asset classes, it will propel the focus on ESG factors. HD: Our research shows that companies that score well on
While this is still relatively new for Indian markets, we the CG Scorecard (score of 60 and above) have out
believe the pace at which ESG will become a centre stage performance the index over a two-year period. Their stock
conversation will be quick.
beta (volatility) also tends to be lower than companies that
PG: Some asset managers believe that not considering ESG do not score well on the CG scorecard. Clearly, equity
exposes legacy investors to uncompensated risks and may markets seem to attach a premium to governance quality.
even constitute a breach of fiduciary duty? Similarly, from a liability perspective, it can be interpreted
that companies with a good governance score, in effect, are
HD: Although most of the ESG tracking seems to be in
chase of long-term returns and attracting capital, there is a likely to have a lower probability of governance failures.
coterie of asset managers that believe ESG factors do PG: Many thanks, Ms. Dalal. Truly appreciate these
expose investors to uncompensated risks. There have been wonderful insights. My best wishes for all your end eavours.
ESG failures that have resulted in sharp deterioration in
market capitalisation resulting in losses for investors. At
the same time, there is a need for investors to be more
discerning around how to proactively factor in ESG – for a
large part, investors (and the market) is reactionary. Even
so, I don't think asset managers in India consider this to the The increasing issuances of green
extent of interpreting it as a failure of fiduciary bonds is also testimony to the fact that
responsibility.
not just companies, but investors too
PG: Do you think Climate Change is becoming an important are showing an increased focus on
agenda for enlightened Indian boards? Measuring Sustain sustainability.
ability Disclosure: Ranking the Worlds Stock Exchanges
2019, both Bombay Stock Exchange and National Stock
th
Exchange of India rank 37 worldwide.
How do we move up?

The Insurance Times, April 2020