Boutique investment firm Avendus Capital is taking money for one of India’s first funds to be based around investment decisions on ESG issues, as Indian company governance becomes a big investor concern.
Avendus envisages it will raise $1 bn over two years with its ESG fund, with about 70 percent of that flow coming from foreign investors.
While ESG and sustainable investment is virtually part of the norm in Europe and the US, the concept is only just emerging in India. But the timing is apt for Avendus, as India battles with a number of governance issues.
Last week, the Central Bank of India reprimanded Yes Bank, India’s fourth-largest private bank, for selectively revealing a ‘confidential’ report by the regulator that led to a 30 percent surge in the bank’s shares on Thursday, calling the disclosure a ‘deliberate attempt’ to mislead the public.
In addition, so far this year allegations of financial irregularities have rocked the nation’s leading drugs manufacturer Sun Pharmaceutical Industries, Dewan Housing Finance and Essel Group, owner of India’s biggest television network.
This in turn is shifting investors’ focus to ESG issues. ‘Traditionally, university endowments and pension funds have tended to participate in ESG. But we are now seeing a lot of appetite also from millennial, high-net-worth investors and family offices,’ says Abhay Laijawala, managing director at Avendus Capital Public Markets Alternate Strategies, in a statement. ‘The compelling news flow around climate change and work-related issues is driving this shift.’
Avendus has an exclusive agreement with proxy advisory firm Institutional Investor Advisory Services India to assess NSE Nifty 100 Index companies based on ESG scores, and aims to invest in no more than 25. The SBI Magnum Equity ESG Fund is currently the only Indian fund that classifies as a portfolio investing in sustainable assets.
But this looks to be changing, as another investment firm – Singapore-based Quantum Asset Management – last week filed a draft with the capital markets regulator for an ESG fund, the Securities and Exchange Board of India website shows.
Global investment based on ESG strategies stood at nearly $23 tn at the end of 2015, according to the most recent data available from the Global Sustainable Investment Alliance.
Abhay Laijawala will be speaking at the IR Magazine Forum – India in June.