ESG investing is attracting growing interest from private banks and their clients across Asia-Pacific – and India is no exception. However, familiarity with the topic in the South Asian country remains nascent compared to other parts of the region.
Below, Rajesh Cheruvu, CIO of Validus Wealth, shares with Asian Private Banker five key ESG themes to watch in the coming years. Based in Mumbai, Validus had US$1 billion AUM as of the end of last year.
Follow the policy
Indian authorities have been busy formulating new regulations and guidelines, pointed out Cheruvu, including requiring the nation’s biggest listed companies to make ESG disclosures from April 2022. However, he added, many businesses were already making voluntary ESG disclosures prior to this date in a bid to lure global investors.
Interest in ESG among Indian investors has also been catalysed by Prime Minister Narendra Modi’s pledge at the 2021 United Nations Climate Change Conference to make India a net zero carbon emitter by 2070. Modi has been pushing renewable energy and encouraging investment in this area in recent years, Cheruvu added.
“Nowadays, [ESG] is no longer an option. It is no longer argumentative. It is a mandatory thing. So the uniformity and homogeneity of disclosures seems to be coming in,” he went on.
Opportunities in clean energy
Cheruvu believes a lot of new ESG opportunities in India lie in clean energy developments. Though still in their infancy, clean energy investment opportunities such as solar panel and silicone manufacturing are becoming of increasing prominence for investors.
According to the Validus CIO, India’s renewable energy output has risen from 20 gigawatts in 2013 to 100 gigawatts today. By 2030, the Indian government hopes to achieve a target of 500 gigawatts of clean energy.
“So far, the government has been putting emphasis and giving incentives for achieving this 500 gigawatts target in a very effective and focused manner, so clean energy is clearly an opportunity,” said Cheruvu.
Other opportunities for investors in the clean energy supply chain include India’s huge technology sector, he added.
Clean energy and technology are not the only ESG-related investment opportunities in India, Cheruvu believes. The country’s pharmaceuticals and medical products industries are among the country’s top export sectors, and demand has been supercharged since the onset of the COVID-19 pandemic.
On the back of the government’s push for companies to incorporate more ESG factors over the past seven or eight years, Cheruvu thinks that pharma companies have become much more cognisant of their carbon emissions and how they deal with manufacturing waste.
Among the recent key developments, he continued, are newer facilities and government programmes that can help manufacturers to develop more environmentally-friendly chemicals and reduce production waste. Penalties can also be imposed on companies that are not complying with regulations, according to Cheruvu.
Lack of ESG products
One big hindrance to ESG investing in India is a lack of products, as currently there are only a handful of mutual funds and indexes available. Only 116 Indian stocks are scored by global ESG rating agencies, out of the 6,500 total names in India, according to Cheruvu. While an ESG-focused ETF has recently been launched and more companies are raising finance via green bonds, he thinks the selection of products in India is far from sufficient. “As we speak now, we don’t have many products available in the marketplace.”
Given the evolving regulatory backdrop, however, Cheruvu believes the number of ESG-friendly products will rise significantly over the next six to nine months.
No longer optional
In the past six to 12 months, Cheruvu has noticed that asset managers in India are starting to put ESG policies and practices in place. ESG is no longer optional, in short.
To capitalise on growing ESG interest in the country, Validus is providing custom investment solutions to its clients, which include family offices. Many are eager to construct investment portfolios that have a much stronger ESG focus, he noted.
Validus has its own rating mechanism that shows where each product stands in terms of ESG when presenting them to clients. But Cheruvu again highlighted the need for a deeper product set, while noting that investor education by private banks and wealth managers will be key to the future trajectory of ESG in India. “Even if I say ESG should make up 5% to 10% of the portfolio, it might not happen … because investors cannot find opportunities to introduce those allocations,” he concluded.