India's ESG assets worth $1.5 bn as of June, form 2% of APAC AUM

Country trails most other Asia-Pacific regions, as per Morgan Stanley report. But activity in ESG is rising, according to Morningstar. Sustainability funds up 80 per cent YoY in 2020-21

India's ESG assets under management (AUM) stood at about $1.5 billion and accounted for only 2 per cent of Asia-Pacific ESG funds AUM as of June 2021 (versus 10 per cent share of overall APAC AUM).

The number of sustainability funds in India accounts for only 2 per cent of the Asia-Pacific total and trails most of the other Asia-Pacific regions in 2021 year to date, according to a report by Morgan Stanley. That said, interest and activity in ESG is increasing, according to Morningstar data. Sustainability funds recorded an 80 per cent year-on-year jump in net flows in 2020-21.

Companies are subject to mandatory ESG disclosure regulations, leading to India's high ESG disclosure rates. These include overarching guidelines on responsible business conduct, coupled with a Business Responsibility and Sustainability Report (BRSR) framework which guides corporate disclosure. Nonetheless, less than half of MSCI India constituents have adopted international reporting guidelines, says the report.

India accounted for 7 per cent of global carbon emissions in 2019 and is vulnerable to physical risks from climate change, as well as risks to water supply. “We see energy transition as the key theme along with the announcement of ambitious environmental targets related to its energy mix, as well as initiatives related to electric vehicles, air pollution, energy storage, etc. We are waiting for India to update its Nationally Determined Contributions (NDCs), but net zero targets might not be likely,” said the note authored by analysts led by equity strategist Tim Chan.

Indian companies are subject to mandatory corporate social responsibility committee and spending requirements. They also recorded high rates of employee diversity and opportunity policies disclosure. Moreover, the establishment of a Social Stock Exchange was approved in September 2021. However, social and development indicators still trail behind those in developing countries overall, said the report.

“India is a pioneer in gender diversity requirement, yet Covid-19 has delayed progress. Being one of the earliest Asian countries to impose a broad gender quota, India had introduced many regulatory-driven corporate governance reforms, but Covid-19 has delayed progress in governance,” said the report.