In both senses of the word, ESG stands for Environmental, Social and Governance accountability: it means investing in sustainability, securing higher than average investor returns and working with a focus on long term outcomes, and right now it’s trending through the roof: well worth paying attention to. Over the past two years a staggering 84% of equity fund investment has been channelled into ESG platforms. And in case you’re wondering what that looks like, it’s a whopping $15.1 Billion according to the Calastone Global Investor Report: in other words, considerably more than the UK Government committed last summer to its COVID stimulus programme. Eat out to Help Out had its moment in the sun, but ESG is here to stay: it means planning for the long term, and building for growth… responsibly.
That’s why in the last four months of last year (at the height of the COVID pandemic, in case we can possibly forget), aggregate investment into ESG Funds was more than the rest of 2019 and 2020 combined. So investors are well aware of what the future requires…it needs ESG, and in increasing numbers those investors voting with their feet (and their wallets).
Well, for a start, it’s about the importance of evaluating corporate behaviour to predict future performance. Compliant businesses are more resilient and robust in the long term, and that means looking closely at issues like sustainability, ethical compliance and (yes) corporate governance, as well as carbon footprint and accountability: score high on any or all of those and you score low on investment risk. In other words, according to the Financial Analysts Guide to ESG Investing for Professionals, “systematically considering ESG issues will lead to more complete investment analyses and better-informed investment decisions.” There you are, you heard it here first, or second if you’ve already been on www.tandfonline.com …
And wholly unsurprisingly, none of this has been lost on the Reserve Bank of India: with the subcontinent emerging as a key destination for ESG investment, Central Bankers in Mumbai are all too well aware that India is vulnerable to the threats posed by climate change (just think back to the Amphan “Super Cyclone’ that hit the country last May): so they’ve been pulling out the stops to keep business at the forefront of environmental and corporate best practice, and that’s not by any means a recent development.
The Central Bank released its first ESG Circular as long ago as 2008, which acted as a pathfinder for better connectivity between previously competing financial, social and environmental imperatives: raising awareness of the need for greater corporate responsibility and long term sustainable development. Since then, it has pressed remorselessly to demand improved accountability across India’s Capital Markets, providing much needed support for a series of important Green Bond issues.
In 2012 the Securities and Exchange Board of India required the subcontinent’s 100 largest companies (by market capitalisation) to publish Business Responsibility Reports (“BPR”) in parallel with annual reporting obligations, and since 2016 the number of companies complying with these requirements has increased from 500 to 1000: 70% of them independently auditing their BPR reports, and five going further by signing up to the Reserve Bank’s Principles for Responsible Investment.
India is also the world’s second biggest emerging Green Bonds Market: since the first issuance by Yes Bank in 2015, an aggregate of $7.2 Billion has been raised by the end of last year, most of it going to fund renewable energy projects. International Green Bond issues are also increasingly popular on the subcontinent, regularly oversubscribed and with higher than average coupon rates. And with the current scarcity of good news stories, that’s certainly a reason for the Reserve Bank of India to give itself a well-earned pat on the back.
Mainstream Impact Investment is the leading model for ESG investment strategies across the globe: recognising, as it does, that robust and compliant businesses are better placed for long-term success. And that’s the model Red Ribbon Asset Management has adopted for more than a decade: securing higher than average rate investor returns, and looking after the planet in the process.
All of which means that it’s time, more than time, to look to the future…
Sustainable investment strategies aren’t just a green wash for corporate filings: for our precious planet they’re a matter of life and death, and in these turbulent times we have to act quickly to make all our futures more secure.
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