Investments in environmental, social and governance (ESG) are gaining momentum as organisations worldwide are trying to adhere to ESG norms without compromising on their business output. While the trend of investments is picking up, organisations must take into consideration various factors, including adherence to regulatory developments, while they onboard investors. In the seventh episode of PwC’s ‘ESG: A bridge to action,’ in association with Moneycontrol, industry leaders discussed ESG investment patterns, regulatory compliances and the road ahead.
Dhanpal Jhaveri, Vice Chairman, Everstone Group, and Dinesh Arora, Deals Leader, PwC India, were the guests who analysed investment patterns in the ESG context. The episode started with the question of what responsible investing means for businesses and responding to the same, Dinesh Arora said that investors have taken the lead in driving ESG, as evident from the 4,500 investors who have signed up for the UN Principles for Responsible Investment, developing a fund which is currently valued at USD 120 trillion. These investors focus on businesses complying with ESG regulations and monitor the steps taken by organisations in their ESG journey.
Commenting on Everstone’s sustainability goals, Dhanpal Jhaveri said that the organisation has focused on building alternative investments platforms since 2006 and ensures that all key ESG metrics are adhered to when developing new businesses. The company aims to create businesses which focus on not only generating profits but also leaving a legacy of responsibility. Dwelling deeper into Everstone’s approach towards sustainability, Dhanpal Jhaveri said that onboarding high-quality investors and multilateral agencies made the company more organised in terms of its approach towards ESG. Eventually, Everstone developed its own four-pillar framework focusing on people, planet, governance and prosperity, and ensured that whichever company it was investing in, adhered to it. ‘Profit with purpose’ is now the core principle of the company.
On the question of companies’ real transformation towards becoming more sustainable, Dinesh Arora said that organisations must be ready to commit to their investors for a reasonable time period to adhere to sustainability metrics. Some of the funds raised to make companies more ESG compliant are 10–75 basis points are lower in value compared to normal financing. Organisations also should have an ESG road map to showcase to investors as well as focus on each ESG parameter to demonstrate their commitment to sustainability. While such transformations could be initially difficult, PwC’s ESG services can help organisations manage and monitor their sustainability journey.
Profits by businesses today do not factor in the environmental cost sustained. A crisis as serious as climate change is bound to have economic impact and steps like carbon taxes levied by Europe could only address the issue to some extent. Two major trends, as observed by Dhanpal Jhaveri, are firstly the emergence of sustainable businesses that are factoring in climate and other risks, and other witnessing growth in their business valuations. Businesses still engaged in operations impacting the environment are gradually declining in value. Corporates will adopt innovative business models to become more resilient in future and become climate positive. Investments in the future will also be more aligned towards organisations that have proactively embarked upon the sustainability journey.
For companies to receive continued financial support, it is important for them to continue to be sustainable. ESG-compliant businesses are already witnessing a drop in their cost of financing. However, more needs to be done in this aspect as this ongoing period of change will determine the longevity and sustainability of ESG-compliant businesses. On being asked about the role government regulations play to fast track ESG in business, Dhanpal Jhaveri said that such rules can drive change up to an extent. Active measures taken to price in the risk of transformation should benefit businesses across sectors. The Government should play a key role in pricing in the risks of ESG transformation in organisations as investors look to provide capital to accelerate the positives of ESG and manage its negatives.
As the valuation of ESG-compliant companies keeps increasing, it is expected that the overall ecosystem will benefit from this trend. The ecosystem created by investors will benefit organisations in the long term and allow them to build a sustainable future.