Climate change consciousness has led to global investment firms prioritising sustainable investments, not only for long-term financial returns but to also provide positive social effects.
While investments in sustainability account for one-third of assets under management (AuM) in the United States and 36% of AuM globally, the Indian sustainable investment space only makes up 10-15% of AuM, by private equity (PE) and venture capital (VC) firms currently.
However, growth in the space is quickly gaining momentum.
Sustainable investments in India are growing at a 5-year CAGR of 46%
According to a report by Benori Knowledge, a new-age provider of custom research and analytics solutions, sustainable investments by Indian PE and VC firms are projected to grow to $125 billion by 2026, at a 5-year CAGR of 46%. By then, it is also estimated that sustainable investments would make up 40% of AuM by Indian PE and VC firms.
The factors encouraging sustainable investment ventures in the country are consumer demand for socially responsible brand behaviour, government policies and the massive growth of cleantech and green initiatives. According to Benori research, the sectors attracting the most sustainable investments are renewable energy, agritech, e-mobility and waste management.
E-mobility especially has been of interest to PEs and VCs, with investments into the sector doubling between the period of 2019-2022. Within the next five years alone, the electric vehicle market in India is projected to attract investments worth Rs. 94,000 crores, states the Benori report.
Companies across all sectors are now moving towards strengthening their sustainability parameters. The consideration for sustainable practices within businesses when making investments is also rising, says the Benori report. Stakeholders are becoming more cautious of the outcomes of their investments, preferring to invest in companies with greater sustainability interests, such as ESG considerations that also bring a long-lasting impact on their credibility.
Benori spoke to leaders in the sustainable investment domain for this report.
“To follow ESG practices is not expensive, it requires diligence, hard work, and in the long run is very rewarding for the company, employee and investors,” says Maninder Singh Juneja, Partner at True North.
“Investors have increasingly begun to recognise that just financial metrics are not enough. The focus is shifting towards investing into businesses that provide not only good returns but also sustainable returns,” says Rupali Gupta, Managing Director of EverSource Capital.
A variety of issues are currently plaguing India's sustainable investments such as lack of quality data, measurement criteria, a traditional mindset, a limited record of sustainable funds, and a lack of awareness. The talent pool with knowledge in the areas of ESG/sustainability is limited, and it is not growing at the same rate as the demand for support for long-term investment.
Reflecting on the findings, Ashish Gupta, Co-founder and CEO of Benori, said, “Growing sustainable demands can only be mitigated by universal acceptance. Slowly but steadily, the investor community will realise that by harnessing sustainable opportunities, their firms will get long-term value and endurance. To strengthen ESG practices and reduce the reluctance towards sustainable investing in the country, there should be significant regulatory push and guidance asking for disclosures that must be supplied in a timely manner.”
Source: The World Economic Forum
Source: Economist Impact Events
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