Prince Mathews Thomas Moneycontrol News
With foreign institutional investors 'getting serious' about environment, social and governance standards when it comes to investing, it's time for India Inc. to take notice, feel senior executives of Protiviti, a US-based global consultancy.
Globally, companies are making the transition from corporate social responsibility to ESG, "as investors are looking beyond numbers to understand how a company functions," Robert B Hirth, Jr, Senior Managing Director of Protiviti, told Moneycontrol.
FIIs have turned cautious on India, and have been net sellers in the last one year, which also saw many marquee corporate names coming under scanner for poor governance.
"FIIs have a huge presence in India, and they take the parameters very seriously," said Sanjeev Agarwal, Country Managing Director, Protiviti Member Firm for India.
Headquartered in California, the firm was founded in 2002, and specialises in internal audit, risk and compliance, and business processes.
Commonly known as ESG, the concept has come into focus in the last fortnight with the launch of India's first fund based on these principles. The Avendus India ESG Fund will invest $1 billion in companies it will pick from a list of top 100 firms by market capitalisation.
Around the same time, another fund based on ESG was announced by ex-Tata Sons senior executives, and Ajit Dayal's Quantum Advisors. This fund too will invest $1 billion, but will focus on mid cap firms.
Globally, over $20 trillion of assets use the ESG criteria when it comes to investing.
"In the last four years, the ESG companies have outperformed others in Europe and North America," said Hirth, Jr.
And these parameters are measurable.
Hirth, Jr pointed to the list of standards issued by the Sustainability Accounting Standards Board, which was founded in 2011 to develop standards to measure sustainability. The Board issued a final list of standards in November last year, that helps measure companies' performance against the ESG standards.
In India too, a start was made when the Ministry of Corporate Affairs in 2011 issued guidelines for promoting sustainability. Later, market regulatory SEBI mandated 500 top companies to report on sustainability.
Bigger interest
In early February, Protiviti hosted 15 private equity companies and large business houses from India Inc to discuss on the ESG concept, in Mumbai.
"One of the PE players had hosted a day-long session on ESG for its portfolio companies," said Vishal Seth, Managing Director and Leader, Financial Reporting and Transaction Advisery.
"One PE has introduced the ESG guideline in a company it recently invested in. So there is interest among investors," added Seth. While he agreed that most of the PEs are presently focused on scalability of the business of a company they want to invest in, many are also focusing on sustainability.
Companies are realising, said Sandeep Gupta, Managing Director, that ESG parameters also make business sense. "Conserving water, or better waste management, helps save money," he said.
But the concept may need a nudge to take off in India. "It is happening in the US, where disclosures under ESG will need to be audited. Something similar in India is possible," said Seth.
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