ICICI Prudential's ESG agenda

“The silver lining of the Covid-19 lockdowns, albeit a slender one, is that reduced human activity has meant cleaner air and water. This situation presents to the world a unique opportunity to carefully plan its recovery and gives further impetus to the environmental, social and governance (ESG) agenda which had already been gaining momentum,” says Santhosh Jayaram, partner and head, sustainability and CSR advisory at KPMG.

It was in 2018, when climate change increasingly came to be seen as crucial to companies’ long-term growth prospects, that ESG gained momentum. “While 2019 can be considered the inflection point as investments made record flow into ESG, The year 2020 is likely to see the focus on ESG intensify as the pandemic has helped fast-track the trust stakeholders have in ESG. Whether it is governments, investors, employees, vendors, contractors, suppliers or the community at large, they will hold corporations more responsible on ESG parameters going forward. The pandemic has given society a pause to reflect on what really matters,” adds Jayaram.

ICICI Prudential Mutual Fund has launched a new fund offering (NFO - ICICI Prudential ESG Fund), an open-ended equity scheme investing in companies identified based on the theme. This encourages sustainable investing, by investing in companies which follow ESG theme. 

“Companies will be assigned a composite ESG score based on the factors mentioned and exposure will be taken in companies by assessing them on the mentioned factors. ESG investing is synonymous with sustainable investing. In the coming years, ESG way of investing will be a new normal in India as most of the millennial and young population in India are more conscious and diligent while making an investment decision,” explains Nimesh Shah, MD & CEO, ICICI Prudential AMC pointing out that “majority of studies highlight that companies with good ESG scores tick-off most of the check-boxes for investing, tends to mitigate environmental and social risks and tends to have stronger cash flows, lower borrowing costs and durable returns.”

So, the ICICI Prudential ESG Fund addresses the growing need of responsible investing and allows investors to benefit from investing in companies which are able to maintain suitable ESG scores. Shah adds that ESG focused companies show better growth which may translate into better wealth creation for investors and could demonstrate better resilience in downturns.”

So, the scheme will invest 80 to 100 per cent in companies with strong ESG scores which reflects the strengths and stability of the companies. It can also invest in foreign securities i.e. global companies with a high ESG score, “The selection process of the scheme will be based on internal research and/or from the Nifty 100 ESG universe,” adds Shah.

In India, the ESG concept is at a nascent stage and has huge scope to explore. Whereas globally, responsible investing i.e. ESG-based investing has been present for a while, with investors happily accepting this concept as showcased through the flows received in 2019 ($154 billion) as opposed to 2009 ($21 billion), according to a Morningstar Direct data as of December 2019.

“In a recent turn of events, for the first time, CDP, an alliance of global investors with combined assets of over $10 trillion, has accused 37 Indian companies of allegedly not disclosing the full extent of their impact on climate crisis, water shortage and deforestation,” observes Jayaram.

“The market economics were ignoring the warnings of science for some time and this incident should bring back the discussion to the forefront. This is also an opportunity for companies to enhance the trust quotient of their stakeholders. The road to recovery from this crisis should be collaborative and inclusive. It’s time to reboot corporate strategy and align incentives, create guardrails and alter fiduciary responsibility to encompass ESG priorities,” says Jayaram.