3 asset managers share their views on ESG

By Larissa Fernand |  13-07-21 | 

For a long while, the ‘E’ in ESG is what grabbed global attention.

When the pandemic hit, it brought to light income inequality and worker safety. The death of George Floyd while in police custody put a necessary spotlight on systemic racism. The discourse began to involve priorities being given to social issues — the ‘S’ in ESG.

At a recent webinar on ESG Investing – Environmental Social Governance, three asset allocators shared their views.

Navneet Munot, managing director and chief executive officer of HDFC Asset Management.

ESG has always been part of our society. It has always been part of our policymaking. It's been part of our industry as well. I would say that our regulators have been far ahead on some of these aspects than the rest of the world.

Several of the improvements that we have made in terms of empowering minority shareholders, right from changes in the New Companies Act, the Listing Obligations and Disclosure Requirements (LODR) Regulations or in the Kotak Committee recommendations, puts India far ahead of several developed countries, as far as governance standards and disclosure standards are concerned.

In December 2019, SEBI implemented the Stewardship Code for all mutual funds and all categories of alternative investment funds (AIFs) in relation to their investments in listed equities. This code became applicable from July 1, 2020. This will go a long way in ESG adoption in India.

Sustainability is deeply ingrained in us. COVID has simply accelerated the trend towards making every organisation, including asset managers and investors, a lot more aware about some of these issues.

(When it comes to mutual funds, SEBI has made it mandatory for domestic mutual funds to vote on resolutions floated by companies where they have investments. As per estimates, mutual funds currently abstain from voting on 10% resolutions; a decade ago the figure was 80-90%.

Starting April 2021, mutual funds will compulsorily have to vote on important resolutions (mergers, corporate restructuring, change in capital structure, stock option plans, appointment and removal of directors, and corporate responsibility issues). From April 2022, mutual funds will have to vote on all resolutions.

Source: Business Standard)

Nilesh Shah, group president and chief executive officer of Kotak Mahindra Asset Management.

ESG is not new. Good companies have always been governed properly, contributed to society, and been conscious of environment. And that's why they have remained relevant over the years and grown.

When the House of Tata set up their first textile mill called Empress Mill in Nagpur in 1877, there were numerous worker welfare initiatives implemented. There was a creche facility for the children of women workers, well-ventilated workplaces, and provident fund and gratuity long before they became statutory in the West.

The ESG framework is a formalisation of good practices on environmental, social and governance issues, which were carried out for many, many decades. Going forward, I believe ESG will become mainstream. Today ESG is thematic, and investment is mainstream. Tomorrow ESG will be mainstream, because there will be no investment without ESG.

Nimish Shah, chief investment officer at Waterfield Advisors.

The world has changed in a very profound manner. And the magnitude of this change, especially in the last few years, has been quite massive. Purpose over profit is here to stay, though some companies in India have been following it for some time.

While recognising drivers of this change, investors and asset allocators need to look at assessing companies and investment decisions which are based on sustainability. Integrating ESG parameters in financial decision making is one way by which we can make sure that we are moving towards sustainable capital allocation. ESG is a realistic lens on investments.

In 2005, IFC hosted a Who Cares, Wins conference. It pointed to the gathering momentum and deep changes taking place in issues that matter.

When Starbucks entered China, they were unable to expand the business till they set in place healthcare systems and healthcare facilities for the parents of the employees. Then they were able to quickly ramp up to 2,000 branches in China in a very short span of time.

(The society’s Confucian values entwine children and parents in a bond of shared responsibility that stretches throughout all stages of life. Starbucks understood this and made engaging parents a cornerstone of its people operations. Since 2012, Starbucks has hosted an annual “Partner Family Forum,” where its employees (whom the company calls “partners”) and their parents can learn together about the company and its future in China. “Partners” talk about their professional experiences in the company and Starbucks leadership -- even CEO Howard Schultz -- speak to the parents.

The company continued to build on this. It then announced the launch of the “Starbucks China Parent Care Program” which provides health insurance for elder parents. The initiative obviously encourages staff retention by giving financial support to employee’s families. Much more importantly, it says to Chinese “partners” that it respects their parents in a way that truly touches the Chinese heart.

Source: Forbes)

Caring for people and environment, that's where the base is and that's where India is kind of moving towards.

Regulatory too. The importance by SEBI on the top 1,000 companies to mandatorily disclose from 2023 onwards is something which is a step in the right direction.

Between the three of us (Kotak AMC, HDFC AMC, Waterfield Advisors), we have around Rs 8 to 10 lakh crores of investment which is being invested from the ESG lens. How effectively we improve the trust and integrity of our clients by using ESG is the way forward.

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