Over the past three decades, we have seen three mega trends and themes shaping up the capital markets and the world at large. It was the TMT theme in the 1990s, then we had BRICS in the 2000s and in the last decade, we had FAANG. What will be next? I believe ESG has the potential to become the “defining theme” of the current decade.
While it is something relatively new, on one hand we can say that it is not new, but an age old practice, which is adhering to the Triumvirate of Indian values – more commonly known as “
”. Satyam (truth) is the ethical component of business, the key ethics that need to be adhered to at the core, whether in business or profession or whatever we do. It’s just like how we as professional investment managers always keep ethics in our core, starting from the business activities and continuing in our daily lives.
Shivam (welfare) is the economic objective of business which effectively includes serving society at large. Its just like in the investment profession we are working for not just our management fees but also for a broader benefit of society, by helping our investors meet their financial goals.
Sundaram (beauty) is the way in which we need to focus not external beauty but on the aesthetical outlook for business, purity of ideas and morality in behavior which is important for any business or profession.
After the announcements at the COP-26 meeting a few months ago, all major economies including India, have increased their pace of moving towards sustainable energy and reducing our carbon footprint.
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We need to be aware that it’s not just the large businesses, but in individual capacity, you and I are also contributing to the carbon emissions in a very big way. How? In the evening, after you are back home from work and you settle in your comfortable corner for some fun Korean webseries to unwind with, the company providing the streaming has to ensure speedy access of that content reaching your screen. For this to work, they have to ensure their large datacentres remain fired up with high potential speed. Various estimates suggest that by 2025, about 1/5th of the global electricity will be consumed by datacentres.
This leads to the quest for more electricity and energy from sustainable or renewable sources. As India and the rest of the world prepare themselves for the COP27 meeting in Egypt towards the end of 2022, there is a huge urgency to move toward the targets of net zero. But this is not going to be easy or cheap. There are various estimates and a broad consensus is that for reaching “net zero” globally, investments of more than US$5 trillion will be needed.
With such large investments estimated over the next 2 decades, policy makers as well as institutional investors will play a very crucial role. So in my view, we as finance professionals will have to enhance our contributions in a big way. Asset managers have been increasing integration using sustainable investing strategies. Many leading asset managers not just globally but even in India (including DSPMF, the firm I work with) have become signatories to the United Nations Principles of Responsible Investing or more commonly referred to as UNPRI. Large asset owners like Pension Funds & Sovereign Wealth Funds now demand that their investments are aligned with ESG and the Sustainable Development Goals.
Increased awareness and knowledge enhancement is being spread by responsible institutes and colleges which have recently launched special MBA programs and certifications in ESG Investing to assist finance professionals to master environmental, social, and governance factors in the real-world investing. But still, such large amounts of investments are not going to be easy.
One of the broader learnings from the last two years of living within the pandemic has taught us that things are never as good or as bad as they look. Key is to look through that, focus on your ability to operate in the situation, and grow. It was very heartening to note that during 2021 India has already become 1 of the Top 3 countries for Investment & Deployment opportunities in Renewables as per the EY Renewable Energy Attractiveness Index. India’s rank raised from 7 in 2020 mainly due to initiatives on Solar front which had seen the Solar Power capacity in India rising to 39 GW overtaking Wind capacity for first time! Now after the budget 2022, India announced its Green Hydrogen Policy which could be a game changer in sustainable energy.
We all have to work collectively, starting with small steps. Remember, our economy is a wholly-owned subsidiary of the environment, and all the best investment ideas would come to nought if we do not take care of the environment.