Meet The Expert - ESG Series - Is ESG a force for real change? Or is it a mere tick box exercise?
Summary
‘Transition’ is becoming the key word for emerging markets when it comes to ESG and sustainability
Global initiatives like Climate Action 100+ are playing an important role in greening the target companies through collaboration between investors. 6 Indian companies feature in this list
Investors should dig deeper and ask companies who have set net zero or decarbonization targets to disclose short and mid term targets and roadmaps to achieving them
ESG should be an integral part of due diligence and monitoring processes and not just an add-on to traditional analysis as it makes business sense both from a risk and opportunity point of view
ESG scores and company’s intent to improve are key factors in stock selection and inclusion
The intent of the regulator has been to avoid greenwashing in the ESG market and it has tackled it through 3 pillars – namely ESG data (BRSR), ESG ratings (amendment to the CRA Act) and investment (ESG funds)
Portfolio level ESG scores of every ESG fund and stewardship reports (as disclosed on their individual website) could be a good starting point for retail investors to understand the ESG impact each product is creating
Deep engagements with investee companies both through conversations and asking questions as well as through voting helps steward companies on various aspects like public disclosures, board independence or any other issues that are topical and material to the company
Good ESG fund managers should keep themselves to new ideas and themes to be successful in this space as this is a very dynamic industry. Good ESG analysts need to learn to talk the same language as their financial analyst counterparts to be able to communicate the materiality of an ESG issue on the stock
