Avendus Capital, the leading Investment Bank in India, has unveiled a report that underscores the growing significance of Environmental, Social, and Governance (ESG) criteria in shaping the decision-making landscape of Indian equity capital markets.
By 2051, ESG considerations are projected to play a pivotal role, accounting for approximately 34 per cent of the total assets under management (AUM) within the country. This remarkable growth is anticipated to be primarily propelled by sectors that prioritise ESG values, including but not limited to renewable energy, electric vehicles, green hydrogen, and climate technology.
As per the report, India’s expansion in New-ESG assets under management (AUM) is forecasted to mirror the ESG growth observed in the broader Asia-Pacific (APAC) region, which is estimated to be around 30 per cent over the next five to 10 years. This growth is expected to stabilise, settling within a range of 15-20 per cent by the year 2051.
Additionally, India will also witness the reclassification of existing assets under the ESG framework, particularly among companies that are deeply committed to incorporating ESG principles into their operations. The primary impetus for this reclassification is expected to come from three pivotal sectors that collectively contribute to approximately 35-40% of India’s market share: Banking, Financial Services and Insurance (BFSI), Information Technology (IT), and healthcare.
Unveiling the report, Gaurav Sood, Managing Director and Head - Equity Capital Markets, Avendus Capital said, “While ESG as a theme has already gained relevance in the global capital markets, it has begun to show green shoots within India. A transition to clean energy is definitely a huge economic opportunity for India, gradually leading to the reclassification of multiple Indian companies as ESG assets. We also think that China’s underperformance within ESG is expected to create a China+1 opportunity, which will benefit India as it is among the top-ranked Asian economies in ESG rankings.”
ESG-related investments in India are experiencing a surge in popularity, driven by three significant catalysts. Firstly, India’s dedicated efforts towards achieving its 2070 Net Zero target, a goal that is anticipated to necessitate an investment of approximately USD 8-10 trillion over the course of the next five decades.
Secondly, the mandates set forth by the Securities and Exchange Board of India (SEBI) regarding Business Responsibility and Sustainability Reporting (BRSR). These mandates have imparted crucial regulatory impetus, compelling publicly listed companies to prioritise sustainability in their operations. And finally, the United Nations Sustainable Development Goals (SDGs), which are serving as a catalyst in evaluating a company’s profitability and its capacity to attract capital.
The year 2011 marked a pivotal turning point for India, characterised by significant advancements in the realm of ESG and the broader sustainability landscape. In the context of ESG, the aspect of “Governance” within Indian companies has garnered heightened scrutiny from a multitude of stakeholders, accompanied by growing institutional pressure on publicly traded firms. Analysis of the corporate governance scores of S&P BSE-listed companies reveals a noteworthy observation: there exists a negative correlation between a company’s corporate governance score and its stock beta. This suggests that companies with stronger governance practices tend to experience lower levels of stock price volatility.