ESG predicted to constitute 34 per cent of India’s domestic AUM by 2051: Study
News from Web 03-Oct-2023
New Delhi: Aligned with India's target to achieve net-zero emissions by 2070, a recent study by Avendus Capital, India's foremost Investment Investment Bank, projects that Environmental, Social, and Governance (ESG) will contribute to approximately 34% of the total domestic assets under management (AUM) by 2051.
The report said that this surge is poised to be propelled by ESG-centric sectors, which include Renewable Energy,Electric Vehicles, Green Hydrogen, and Climate Tech.
The study draws a parallel between India's ESG growth trajectory and the APAC region's. While the APAC region is anticipated to witness an ESG growth of about 30% over the upcoming 5-10 years, the rate for India is predicted to stabilize between 15-20% by 2051. The nation is also set to observe a reclassification of its existing assets under ESG,predominantly from companies with a high inclination towards assimilating ESG into their core business operations. Sectors such as BFSI, IT, and Healthcare, which jointly hold a market share ranging from 35-40%, are slated to spearhead this reclassification.
Gaurav Sood, Managing Director and Head of Equity Capital Markets at Avendus Capital, while introducing the report, stated, “The ESG theme, which has already marked its significance in global capital markets, is now beginning to take root in India. The shift to clean energy can be an enormous economic boon for the country, inevitably leading to the reclassification of numerous Indian enterprises as ESG assets."
He further emphasized the potential benefits India might reap from China's underperformance in the ESG sector, referring to it as a 'China+1' opportunity. This comes especially since India stands as one of the top contenders in Asian ESG rankings.
Three pivotal elements are driving the momentum of ESG-linked investing in India. First, India's commitment to the 2070 Net Zero target, necessitating a capital expenditure approximating USD 8-10 trillion over the subsequent half-century. Second, the mandates decreed by SEBI pertaining to Business Responsibility and Sustainability Reporting (BRSR) that has infused a regulatory thrust, directing listed entities to prioritize sustainability. The third driver is the United Nations Sustainable Development Goals (SDGs), which are becoming instrumental in evaluating a firm's attractiveness and its capability to mobilize capital.
Reflecting on historical data, 2011 emerged as a defining juncture for India, primarily steered by considerable advancements within the ESG spectrum and the overarching realm of sustainability. Among the ESG parameters, 'Governance' is increasingly coming into the limelight,drawing attention from multiple stakeholders. An increased institutional resistance is visible for listed entities.
A notable inference from the corporate governance scores of S&P BSE companies is the inverse relationship observed between the corporate governance score and stock beta, indicating that companies with commendable governance practices tend to experience reduced stock price fluctuations.
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