An environmentally-conscious young investor base has forced asset managers around the world to demand more from companies on sustainability, and scrutinize companies that are seen as major polluters.
While the pandemic has given a big fillip to ESG investing, it has also resulted in some parts of the investment community seeing it as a fad.
The monstrous rally seen in sectors such as steel, energy and power over the past 12 months has been used by some as evidence that sustainable investing is just a trend. This notion has been given some credence by the likes of Warren Buffett and Charlie Munger investing in energy companies over recent years.
Buffett and his board had last month opposed two shareholder resolutions at his company’s annual shareholder meeting that called for annual reports on how its companies are responding to the challenge of climate change, as well as reports on diversity and inclusion in the workplace, a Reuters report said.
That said, the two giants of India’s mutual fund industry had a very convincing argument for why ESG investing or sustainable investing is not just a fad.
Nilesh Shah, MD, Kotak AMC
The renowned asset manager and managing director of Kotak Asset Management Company, Nilesh Shah believes that ESG investing will become more mainstream in India in the time ahead.
Speaking at MorningStar’s ESG Conclave, Shah said that there will be a time in future when no investment will be without the basic tenets of environment, social and governance. However, Shah pointed out that ESG investing in India will have to adapt to the local needs and regulations instead of blindly following the standards set in the West.
Shah said that at Kotak AMC, his team is implementing ESG in reverse order, that is, governance first, social second and environment last. This is so because Shah believes Kotak AMC currently has more know-how about corporate governance and social contribution than environmental issues, something his company is addressing through tie-ups with global asset managers.
Navneet Munot, MD and CEO, HDFC AMC
One of the finest asset managers in India over the past decade, Navneet Munot believes that if ESG investing is about exclusion of certain kinds of sectors or companies based on hard and fast definitions then that form of ESG investing is “certainly a fad”.
The newly-appointed head of India’s third-largest asset management company, fund managers need to be conscious of not voting with their feet in a country with merely $2,000 per capital income and instead ensure that they work with policymakers and companies so that growth is sustainable and profitable.
“To me ESG is about engagement, it’s about stewardship, it’s about value creation, and it’s about collaboration. Another way to look at it, are funds who are investing in best-in-class companies in every sector without specific exclusions,” Munot said.
For many Munot, India needs more quantitative parameters and more science-based targets for assessment of whether a company is doing well on ESG metrics.
That said, Munot is of the view that unlike China that had a huge impact on the environment as it shifted through its growth gears, India’s journey from $2,000 per capital to $5,000 per capita will be very different
