OPINION: ESG investing remains strong even as markets crash around the world

The crossroads of ESG (Environment, Social and Governance) and impact investing is no longer just for the morally motivated. In a global economy dependent on sustainability and the availability of natural and human capital, doing good makes financial sense.

Today’s most visionary and responsible corporate, financial and public leaders understand this and have the data to prove it.

The ESG success story

Harvard Business Review and several other studies attest that strong performance on ESG-related metrics translates to better financial returns and improved accountability. This finding was echoed by the 2017 Global Impact Investing Network (GIIN) Annual Survey of Impact Investors. Based on analysis of over 200 of the world’s largest impact investing firms, the survey found that the majority of respondents achieved market-rate returns, with 91% saying their returns met or exceeded their professional expectations.

Today, where traditional markets have failed, many impact investment managers are succeeding by creatively using philanthropic and impact investing tools and betting big on companies that generate strong social returns. and long-term finance. Indeed, at a time of market turmoil and the worst April for equities in decades, ESG-labeled funds are awash in cash.

Global ESG assets are now on track to surpass $53 trillion by 2025, showing particularly strong performance in emerging markets.

So what gives?

It’s actually fairly easy ! As socio-environmental issues such as climate change, poverty, human rights, and gender and income inequality become more central to day-to-day business decisions, more business leaders and of global investors are realizing that profitability and longevity are no longer just about shareholders.

Progressive business leaders understand that their success is not just driven by one metric: the highest and fastest form of financial return at the expense of everything else. Investing in human and natural capital increases returns and reduces risks such as those associated with the escalating climate crisis.

Need for ESG investments in India


This is particularly relevant in a market like India, where the economic impacts of global warming manifest themselves in real time. An unprecedented and deadly heat wave – made 30 times more likely by the climate crisis – has led to a substantial reduction in yields of the country’s wheat crops. This, in turn, caused the government to cancel an earlier plan to supplement the world’s wheat supply which was affected by the war in Ukraine.

Soaring temperatures have also led to power and water supply shortages and forced millions of people to limit their early morning and evening activity, reducing India’s overall economic productivity and output. Make no mistake, a regional heat wave over the world’s second largest wheat producer has global implications in today’s world.

This is exactly why investments in everything that is sustainable – from regenerative agriculture and clean energy to low-carbon and climate-resilient infrastructure, better health services and education for all – are the need of the hour.

Sustainable Investment Opportunities in India

Take water, for example. A clean water supply is the backbone of a healthy economy, but it is unfortunately under-prioritized globally. India is the fastest growing economy in the world, but 50% of the population lacks access to safely managed drinking water, resulting in an estimated economic burden of around $600 million Americans per year.

This presents a tremendous opportunity for investment in water utilities and environmentally friendly businesses that clean, purify or distribute water to everyone. Within the founding team of Water EquityI have seen firsthand how water investments in emerging markets have helped families and entire communities create wealth and improve health.

This potential spans all ESG-focused sectors, including renewable energy and gender equity. Wind and solar energy generated 10% of the world’s electricity last year alone and have tremendous potential for scale. India, which has announced its goal of achieving net zero emissions by 2070, is uniquely positioned to become a global leader in renewable batteries and green hydrogen. According to the International Energy Agency, these and other low-carbon technologies could create a market worth up to US$80 billion in India by 2030.

Investing in gender equality

There is also substantial opportunity for growth and financial gains in India by improving women’s access to markets and financial assets and investing in women-led businesses. Current estimates put Indian women’s formal labor force participation rate at just 24%, among the lowest in emerging markets. In the C-Suite, women make up just 4.7% of CEOs in India, while less than 1% of Indian founders who receive Series A funding and beyond are women.

Yet McKinsey Global Institute (MGI) found that achieving gender equality in India would have a greater economic impact than in any other region of the world – $700 billion in additional GDP by 2025. According to another report from the MGI, India’s economy could grow another 60% by 2025, adding $2.9 trillion, if women were represented in the formal economy at the same rate as men.

Go forward

Now, I’m not saying ESG will magically solve all of our problems. To ESG critics, let me be clear – it is true that ESG ratings today are sub-optimal and disclosure requests are a work in progress. And when it comes to ESG and sustainability in general, too many of us still don’t speak the same language (which the development of the International Sustainability Standards Board could help with).

ESG in its fullest form has yet to be realized, and its intersection with impact investing is very promising. This is where we begin to move from passive, negative selection and divestment to proactive investments that generate both social impact and financial returns.

The intersection of ESG and impact investing are the best tools we have to leverage the power of capital markets in a way that reflects the kind of world we want to live in. So why don’t we implement these business and investment practices at all levels? Why do we continue to defend the status quo when it has repeatedly failed the planet and left so many people behind?

The cost of silence and inaction is far too high to settle for the status quo!

Alix Lebec is the founder and CEO of

Lebec Consulting,
a
a women-owned and run company that helps businesses and entrepreneurs with philanthropy, impact investing and ESG investing.

Disclaimer: The opinions expressed by the author/interviewee do not necessarily reflect the views of Business Insider India. The article has been partially edited for length and clarity.

This column is part of the month-long awareness campaign for June 2022 on the theme “
One Earth: Supporting People, Planet and Prosperity
” by
Business Insider India’s Sustainability Insider
.

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