Avendus Capital’s groundbreaking report offers a compelling glimpse into the future of India’s financial landscape, where Environmental, Social, and Governance (ESG) considerations are set to play a pivotal role.
In a transformative report that illuminates India’s financial future, Avendus Capital, the nation’s premier investment bank, foresees the remarkable ascent of Environmental, Social, and Governance (ESG) considerations in the realm of Indian Equity Capital Markets. Projections from this study suggest that ESG factors are poised to contribute to approximately 34% of India’s total domestic Assets Under Management (AUM) by the year 2051. This surge is expected to be propelled by ESG-centric sectors such as Renewable Energy, Electric Vehicles, Green Hydrogen, and Climate Tech, among others.
The Evolving Landscape of ESG in India
As the Avendus Capital report unveils its insights, it becomes apparent that India’s growth in New-ESG AUM is paralleling the trajectory witnessed across the Asia-Pacific (APAC) region, with ESG investments expected to grow by approximately 30% over the next 5-10 years. This growth is projected to stabilize at a sustainable range of 15-20% by 2051. A notable shift will occur in the reclassification of existing assets under ESG, particularly among companies that are committed to integrating ESG principles into their core business strategies. The driving forces behind this reclassification primarily emanate from three key sectors—Banking, Financial Services, and Insurance (BFSI), Information Technology (IT), and Healthcare—which together contribute to around 35-40% of India’s market share.
Gaurav Sood’s Vision for India’s ESG Future
Gaurav Sood, Managing Director and Head of Equity Capital Markets at Avendus Capital, expressed his optimism during the report’s unveiling. He emphasized, “While ESG as a thematic investment approach has already gained significant traction in the global capital markets, it is beginning to sprout green shoots within India. The transition to clean energy presents a monumental economic opportunity for India, leading to the reclassification of numerous Indian companies as ESG assets. Furthermore, we anticipate that China’s comparatively slower progress in the ESG domain will create a ‘China+1’ opportunity, thereby benefitting India—an Asian economic powerhouse consistently ranked high in ESG rankings.”
Triggers Accelerating ESG in India
Three compelling catalysts are propelling ESG-linked investments into the mainstream in India. Firstly, the nation’s unwavering commitment to achieving its 2070 Net Zero target, which is projected to necessitate a substantial capital expenditure of approximately USD 8-10 trillion over the next five decades. Secondly, the Securities and Exchange Board of India (SEBI)’s mandates on Business Responsibility and Sustainability Reporting (BRSR) have infused regulatory impetus into listed companies, compelling them to intensify their focus on sustainability. Finally, the United Nations Sustainable Development Goals (SDGs) are poised to serve as a catalyst, aiding in the assessment of a company’s profitability and its ability to attract capital.
ESG Governance: A Pivotal Focus for India
The year 2011 marked a pivotal moment in India’s journey towards ESG integration, characterized by significant developments in the broader sustainability landscape. Notably, ‘Governance’ within Indian companies has garnered increasing attention from various stakeholders, with institutional forces pushing listed companies to elevate their governance standards. A pertinent observation from the Corporate Governance score of S&P BSE companies underscores the significance of this aspect, revealing a negative correlation between corporate governance scores and stock beta. This implies that better-governed companies exhibit lower stock price volatility, affirming the integral role of governance in ESG considerations.
As India embarks on this transformative ESG journey, it is clear that sustainability considerations are poised to become central pillars of the nation’s financial landscape. Avendus Capital’s visionary report provides a roadmap for investors, businesses, and policymakers, guiding them towards a greener, more sustainable tomorrow.
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