India-First-Global-Insights-Analysis -Sharing-PlatformIndia-First-Global-Insights-Analysis -Sharing-Platform

Socially responsible investing in India

, April 8, 2013, 1 Comments

Socially responsible investment (SRI) has been creating waves in the sea of global investment since last couple of years. It has been more so in recent years when crisis has become normal phenomena and natural calamity has been very frequent owing to global warming and other related reasons. SRI has emerged as a specific investment class with several global investment banks creating special team to work on this. A number of indices and exchange traded funds (ETFs) based on socially responsible investment theme has been launched in recent years. SRI is being considered the most successful green market in U.S. with more than $3.74 trillion of SRI assets.

SRI seeks to balance financial return and social good at the same time. The focus remains on sustainable, socially conscious, green and ethical investing. Through investment vehicle of SRI, effort is made to promote and support companies who practice environmental stewardship, social justice, social development, human rights, gender equality, good corporate governance and diversity among others. In brief, SRI includes investors who apply various environmental, social and governance (ESG) criteria in their investment analysis and selection.

While globally SRI has emerged as one of most powerful trends among the investment community of the developed world, concept is still in a nascent stage in India. Forget full fledged SRI, even good corporate governance and transparent financial reporting are not yet very prevalent among Indian corporate. Enter “socially responsible investment” in Google search engine, you will get more than 4.5 million results. Now enter “socially responsible investment in India” in Google search engine, you will not even get one million results and even then most of the results are not indicating at Indian origin. One noticeable result was though socially responsible equity investment programme at Yes Bank known as “Tatva”. Well, leave Google results here itself and move on to socially responsible investment in India.

For common equity investors in India who wants to invest on SRI theme, availability of readily available investment opportunities (mutual fund or ETF) is scarce. However, S&P and CRISIL had launched an index based on environmental, social and governance (ESG) theme few years back; the index is known as S&P ESG India.

A brief primer on S&P ESG India:What is S&P ESG India?

The S&P ESG India is an index that provides investors exposure to 50 of the best performing stocks in the Indian equity market as measured by environmental, social, and governance parameters. The index represents the first of its kind to measure environmental, social, and corporate governing practices based on quantitative rather than subjective factors with the implementation of a unique and innovative methodology.

What are top 10 constituents companies of S&P ESG India index?

The top 10 constituents include Mahindra & Mahindra, Wipro, Infosys, HCL Technologies, ITC, TCS, Tata Chemicals, Dr. Reddy’s Laboratories, L&T and ACC.

Which industries are mainly represented in this index?

Software, Banking, Automobiles (4 wheelers), Pharmaceuticals, Power, Cement, Refineries and Steel industry have more than 4% weight-age in the index.

Where can one find quote and more information on S&P ESG India index?

Index quote and more information can be found on NSE website and the link given below: Thematic indices

Chart 1 indicates that S&P 500 ESG index has mostly outperformed the market by a considerable margin after initial hiccup. Over the indicted period in chart, S&P ESG India yielded return of 103% as compared to just 47% yielded by Nifty. ESG index help investors shortlist companies doing good on SRI theme.

Investors can replicate same portfolio to gain exposure to companies who are rated best on the ESG criteria. What more? An investor has an opportunity to pocket good relative return while indirectly contributing to equitable development of society.






About author
Rajesh Ranjan is a Chartered Accountant with Post Graduate Diploma in Investment Analysis and MBA(finance) from Asian Institute of Management (AIM), Manila. He has around nine years of experience in the field of investment research (equity and fixed income) with leading financial services firm such UBS and Guggenheim Transparent Value. ...more