Two unrelated events in Mumbai, in the last week, highlighted the promise and challenge involved in India attracting capital from Socially Responsible Investing (SRI) funds.
On April 29, at an event hosted by Federation of Indian Chambers of Commerce and Industry (FICCI ), the United Nations Environment Program (UNEP) released its report on ‘Delivering a Sustainable Financial System in India’. Discussions at this event highlighted slow but significant steps by Indian regulators that could enable Indian funds to tap some of the estimated $21 trillion now globally managed by SRI funds.
Then on May 3, the Bombay Chartered Accountants Society invited a start-up called Sacred Capital to make a presentation to raise awareness about the need make socially and environmentally responsible choices about where capital is parked.
Both events represent two entirely different levels at which India is beginning to engage with a major challenge of our time: How to reconfigure capital markets so that they address the accelerating environmental and climate crisis. Add to that, the question of how can societies across the world redefine wealth so that it is equated not just with money but actual well-being.
Naina Lal Kidwai, former head of HSBC India, said at the FICCI/UNEP event, that so far India has been globally regarded as a laggard in the sphere of SRI or even its more limited avatar known as ‘green finance’. There is now an urgent need to alter this because “money is waiting to come here (India) provided we can show certifiable projects” said Kidwai, who served as Chair of the UNEP Inquiry India Advisory Council which produced the report.
Between 2006 and 2015 the number of corporations that are signatories to the United Nations Principals of Responsible Investing (UNPRI) has gone from less than 100 to over 1,300. In the same period, the combined assets of UNPRI signatories have gone from about US $ 5 trillion to $55 trillion. In addition, an estimated US $ 21 trillion assets under management, globally, are now in the care of SRI funds.
Can India become a preferred destination for some of these SRI funds?
The UNEP report notes several positive developments in this regard:
- The Indian Banks Association has launched national voluntary guidelines for responsible financing.
- The Reserve Bank of India has included social infrastructure and decentralized renewable energy within the priority sector lending requirements for banks.
- The Securities and Exchange Board of India (SEBI) has issued requirements for the development of a green bond market.
- The increase in the coal ces and raising of funds for the National Clean Energy Fund (NCEF)
However, the UNEP’s global report on sustainable finance has noted that regulators in other countries have done much more. For instance, China already has a portfolio of 14 distinct recommendations to advance its green financial system, covering information, legal, institutional and fiscal measures. In Peru, due diligence requirements have been introduced for banks to help reduce social and environmental externalities. France has new disclosure requirements for institutional investors as part of its energy transition legislation in response to climate change.
There’s another factor for India’s slow motion in this sphere: demand. In the Western countries, the rise of SRI and green finance has to a large extent been led by demand from investors in the form of shareholder activism setting ethical benchmarks for how profits are earned. So far, such a mobilization has not happened in India. The Mumbai based National Stock Exchange’s Environment, Social, Governance (ESG) Index was launched in 2008 but is no longer functional.
It is in building shareholder and investor awareness that entities like Sacred Capital can play a crucial role. Siddharth Sthalekar, the 34 year old IIM-Ahmedabad graduate and founder of Sacred Capital, tells his clients that it is their demands as shareholders that will drive companies to be both more honest and responsible not only to them but society at large.
Sacred Capital’s work is partly made possible by SEBI now making it mandatory that a fiduciary, i.e. a financial caretaker, must not also be the salesperson for any financial products or assets. These trends – both in the realm of SRI start-ups and financial regulation – need to grow exponentially for India to acquire a presence in the global SRI sphere.
In April this year Morgan Stanley India issued an advisory urging corporate and investors to sit up and take notice of the new trend that that more money is now “going to chase companies that score highly on ESG and that will result in premium valuations.”[1]
In this context, the UNEP’s India report could well galvanize the setting up of credit ratings and certification processes that are essential for SRI investors to identify Indian companies they can invest in. A combination of such analytics, supportive regulatory measures and awareness building among investors could finally put India on the SRI map of the world.
Rajni Bakshi is Gandhi Peace Fellow, Gateway House.
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References
[1] Hattangadi, Amay and Swanand Kelkar ‘Connecting the Dots – ESG: a new dimension of investing’, Morgan Stanley, April 2016,