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India, along with many developed countries, is accelerating its efforts to ensure growth based on globally accepted principles of sustainable economic development. Various regulatory controls and processes have been mandated, like the Energy Conservation (Amendment) Bill 2022 and the Business Responsibility and Sustainability Report (BRSR).

The former covers aspects like mandatory replacement of fuel-based energy sources with renewable energy sources like green hydrogen, biomass, ethanol, hydro and solar by users of energy like the manufacturing industry and by large commercial and residential buildings.

The BRSR mandates reports from listed companies on their sustainable contributions to factors like governance, environment, social, customer, supply chain, and human rights.

India’s move towards a more sustainable operating environment across industry, services and agriculture sectors already unleashes investment opportunities for Indian businessmen and investors alike.

Many businesses have recognized the importance of sustainability and are dedicated to sustainable practices that align with global initiatives such as the Paris Climate Agreement and the United Nations Sustainable Development Goals. From being just a philosophy of making the world a better place to live in, aspects like ESG, Clean Energy and Climate Control have opened concepts that intersect sustainability with profits.

The UN’s 2023 Global Sustainable Development Report confirms that the world is nowhere near on track to reach its 2030 SDG targets – largely delayed due to the pandemic. There is also a visible back-lash seen, especially amongst US institutional investors. The paradox is that while fund managers incorporate factors like Governance in their assessment criteria, they are reluctant to follow all the ESG parameters. On the other hand, EU investors are more likely to aid efforts by investing in companies to achieve net-zero greenhouse gas emissions as per legislation.Globally, an estimated investment of USD 4.2 trillion per annum is required to meet the Sustainable Development Goals (SDGs) as laid down by the UN. This looks achievable because the total financial assets industry (banks, asset managers and institutional investors) is at USD 379 trillion.

By end-2022, the global investments in sustainable assets touched USD 30.3 trillion with non-US markets showing 20% growth in assets. There is surely a long way to go on a path already laid down, but sustainable investments are a force that capital markets cannot ignore, and the industry is showing signs of strength every year.

India, at the cusp of a possible high multi-decade growth trajectory, will surely have various investment avenues that would help achieve India’s commitment towards sustainable development. Managers are adopting various sustainability aspects while investing that include factor-based screening, integration with ESG/BRSR norms, and funding companies focusing on impact investing.

While Greenwashing is a concern, the country needs an efficient and reliable control and audit system to verify BRSR reports, probably best managed through a not-for-profit government organisation like AMFI. While SEBI has regulated BRSR reporting of top 1000 stock exchange listed companies by 2027 (top 250 companies by 2024), it is important that all segments of capital markets are addressed, like fixed income, venture capital and private equity funds.

As globally, millennials in India are taking a keen interest in the principles of responsible investing. This generation has been in the thick of witnessing climate change and looking to correct the excesses by investing with a mindset of bringing in sustainable development.

They truly hold the key to a better sustainable future. They need to, if not already, think about investing for profits with a purpose.

Companies investing in clean and green businesses should benefit in the longer term and hence capital allocation should be considered.

There are opportunities in public and private markets in areas like public transport, private vehicles, solar, chemicals, green construction, recycled waste for infrastructure, agriculture (like water conservation, vertical farming, agroforestry, and biodynamic farming), and data analytics (like digitisation and AI).

UHNIs and Family Offices can help create a glide path to ensure increased allocation to this category. Beginning with a 5% exposure to such investments, the end goal over 3-5 years would be to have 25-30% investments in companies and ventures that actively use various technologies to reduce their carbon footprint.

Bespoke wealth managers and multi family-offices provide such investment opportunities. These advisors can assess the ESG commitments of these public and private investee companies. They use research, models, and scores that evaluate the adherence to set goals and can monitor and benchmark the investments.

Capital allocation is the most powerful tool and we should use it to our advantage! Taking the call to invest for impact is an investor’s most sustainable approach. Peter Drucker said, “The best way to predict the future is to create it”. Let FY24-25 be the beginning to add to your efforts to create a sustainable future by following responsible investing principles.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

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