INSUBCONTINENT EXCLUSIVE:
all the stakeholders, the wider society, or the planet as a whole? The idea of the core purpose of a business has evolved from maximising
shareholder returns, to balancing shareholder returns with the demands of a multiplicity of stakeholders, to serving the needs of the
society it belongs to and protecting the environment.Traditionally, businesses thought about the environment or society as something
external which they can affect, however, there has been a growing recognition of the dependency of business on environment or social
changes.Moreover, there is a growing concern around potential flaws in the current socio-economic system that accentuates economic
prosperity and incentivises business models that can cause significant damage to the planet and society in pursuit of profits.This has led
to the growth of purpose-driven companies and sustainable investments
Sustainable investing, therefore, is an evolution of traditional investing as it takes into consideration the environmental and social
impact of an investment in addition to its ability to generate lasting financial returns.A variety of investment approaches have emerged,
ranging from impact investing, which aims to create social goods, to ethical investing, which propagates exclusive investment in things that
support the planet and society.Environmental Social Governance (ESG) and Socially Responsible Investing (SRI) became buzz words within the
global investor community
factors alongside the conventional valuation methodologies to generate sustainable returns.However, SRI goes a step beyond the ESG to
prioritise or disregard a financial proposition based on broad ethical guidelines
It demonstrates investors' commitment to their purpose and how they are contributing to social and environmental causes.Globally, investors
are incorporating ESG considerations into investment analysis and decision making
Both equity and credit investment managers are assessing ESG risks and mitigation factors of their investments.The number of investors who
have signed up for the UN Principles for Responsible Investments (UN PRI) has reached over 3000 in the last 20 years, and these signatory
investors have roughly $100 trillion assets under management, i.e
and businesses has boosted the demand for sustainable investments globally
While governments are committing to net zero targets to decarbonise countries and global regulators are enforcing mandatory targets upon
various industries, purpose-led businesses are committing to voluntary net zero targets to reduce carbon emissions from their own
operations, and SRIs are decarbonising their investment portfolios by attempting to remove carbon exposure and increase allocation to
climate solution portfolios.Various governments have enacted regulations and started imposing a carbon tax using carbon credit to penalise
large industrial emitters; this gave rise to the compliance carbon market
However, as businesses and investors are committing to voluntary reduction targets, carbon credits are being transacted in the voluntary
a myth that a sustainable investment portfolio does not yield compelling financial returns
There is enough evidence to suggest that investors can build portfolios with significantly better climate characteristics but with the same,
or better, risk adjusted returns
Climate solution portfolios have performed broadly in line with the rest of the market for the last 10-15 years, however, in the last 5
years they have outperformed the market.This is primarily because the market has started to price in the scale of transition and the
positive stories we see as the world moves from fossil fuels to renewable energy sources
Socially responsible organisations are investing heavily in infrastructure and technology to support sustainable business goals that will
invariably reduce the costs of operations.Banks are reducing financing to high carbon intensive businesses, offering discounted pricing on
green financial products like mortgages, and helping businesses to raise sustainable funding
Institutional investors are rebalancing their portfolios and increasing exposure to climate solution-oriented businesses.These changing
preferences have accelerated the transition to a low-carbon economy by creating increased demand for sustainable products and simultaneously
reducing the cost of operations and capital for carbon solution-oriented businesses
The transition scale is such that even if you are a passive investor and take an exposure to a standard market index, you will get carbon
independence, it is imperative for us to recognise our responsibility towards balanced growth, climate change, and social reforms
While the government is framing policies and allocating budget to support the social and environmental cause, there needs to be a collective
personal opinions of the author
The facts and opinions appearing in the article do not reflect the views of TheIndianSubcontinent and TheIndianSubcontinent does not assume
any responsibility or liability for the same.
