Reliance Industries Ltd said last week that it is aligned with the global decarbonization agenda as it aims to become a net zero carbon company by 2035. ₹75,000 crore of capital spending on investments in “new energy”, including green hydrogen and fuel cells, is considered ESG positive by analysts.

Tata Steel Ltd plans to identify key ESG risks in the supply chain and collaborate with partners for risk mitigation and integrate the ESG performance of supply chain partners into decision making in procurement, the company said in an email response, adding that it had mapped its goals to the United Nations 17 Sustainable Development Goals (SDGs). HDFC Bank Ltd, which aims to become carbon neutral by FY 32, offers loans for green products such as electric vehicles at lower interest rates and incorporates ESG scores when making decisions about credit.

“It is encouraging to see Indian companies embrace global reporting standards and deepen disclosures,” said Abhay Laijawala, Managing Director and Fund Manager, Avendus Capital Public Markets Alternate Strategies LLP. “It is also very encouraging to see Indian companies publishing integrated reports. is a combination of push and pull factors. As regulators increasingly pressure companies to disclose sustainability criteria, investors, too, are shifting their investment preferences to companies seen as sustainable and responsible, ”said Laijawala.

According to Laijawala, a business is now seen as much more than a property and is not isolated from its social and natural ecosystems.

According to Kotak Institutional Equities Research, four out of five Nifty companies voluntarily release their ESG compliance data as investors explore ESG compliance for long-term sustainability. Sustainability reporting is voluntary in India, yet 41 out of 50 Nifty companies provide detailed information on sustainability. This is expected to increase after the Securities and Exchange Board of India (Sebi) recently issued guidelines for Corporate Responsibility and Sustainability Reporting (BRSR), which are voluntary in fiscal year 22 and mandatory from for fiscal year 23 for the top 1,000 listed companies.

Inderjeet Singh, director of Deloitte India, said companies that missed ESG opportunities are catching up. “The scale and the very impact of companies on the environment and society is of a different order for large companies, often resulting in higher levels of control by regulators for any non- important compliance. Being part of the large multinational ecosystem is another reason for them to stay on track when it comes to ESG compliance and disclosures across geographies. In addition, ESG disclosures have become an established channel for obtaining stakeholder feedback, ”Singh said. BRSR disclosures will help improve the quality of disclosure, Singh added.

Experts said many Indian companies are increasingly leveraging global platforms such as MSCI, Sustainalytics and S&P to get ESG rated. Investors began to review ESG due diligence as well as financial and legal due diligence before taking investment exposures. This due diligence also takes into account the criteria for measuring global performance defined by the Sustainability Accounting Standards Board (SASB).

“Investors and consumers are two important pillars of any business value chain. While the regulatory environment plays an important role, the trigger (for regulators) often comes from market dynamics. With countries around the world looking to boost investment, consistent corporate ESG performance offers an additional layer of comfort to investors about the safety of their investment and expected returns. Specifically in India, the paradigm shift through BRSR, the digitization of ESG performance and possible ranking of companies through ICAI are some additional triggers for such actions, ”Singh added.

He said that if companies did not take note of the increase in global ESG assets, it was inevitable that they would not qualify for future investment opportunities.

The wave of ESG-focused funds has also hit India. National ESG funds had average assets under management (AUM) of ₹9,800 crore in FY21, with seven of 10 funds launched after June 2020, including funds from Aditya Birla Sun Life, ICICI Prudential, Kotak ESG Opportunities, Quant ESG Equity, Mirae AMC and Invesco India.

“Overall, the subject of ESG is evolving. The social and, in some cases, governance parameters are slightly weaker. But all three components will have to evolve over a period of time. Globally, ESG has become a topic of discussion; and therefore, for Indian companies. So if companies want to be on the radar of global investors and funds, then ESG is the topic, ”said Shriram Subramanian, Founder and CEO of InGovern Research Services.

According to Kotak Institutional Equities Research, capital goods, financial services, healthcare, IT services and pharmaceuticals are best placed for the ESG risk-opportunity framework. Low-risk consumer staples and telecommunications services also remain in their favorite list. Automobiles and their components, building materials, electric utilities, metals and mining, oil, gas and consumable fuels are more sensitive sectors on India’s ESG radar.

The S&P 500 ESG index outperformed the S&P 500 by 459 basis points in fiscal years 11-21. The outperformance is more marked in emerging markets and in particular in India, with the MSCI EM ESG Leaders index and the MSCI India ESG Leaders index outperforming their respective benchmarks by 50% and 61% over the same period.