The fund will invest $30-50 million in small-to-mid-cap companies for an 8-9 per cent stake. The fund plans to raise the corpus from sovereign wealth funds, pension funds and endowments looking to invest in businesses with this prism.
ESG is a popular theme of investing globally to improve companies’ performance on responsible practices in all three areas, but there are no funds focused on the aspect in India.
The joint venture will be chaired by Mukund Rajan, who had served as Tatas’ brand custodian, chief ethics officer and a member of the group executive council during Cyrus Mistry’s chairmanship, and will be joined by former Tata Capital chief operating officer Govind Sankaranarayanan and former Tata Sons director Alan Rosling.
The three founders have worked in the Tata group for more than 20 years. Quantum, led by Ajit Dayal, was the first institutional equity research house in 1990, and is known for ethical, value-investing. Quantum AMC has Rs 1,344 crore of assets under the management.
“We believe that long-term focused capitalism is the need of the hour and this is also recognised EU, the International Society of securities regulators, the World Economic Forum... It is clear that there is a strong wind blowing in favour of ESG,” Sankarnarayan told Business Standard over a conference call.
The fund will invest in firms with a high ESG score and lift others by working closely with their promoters, boards and management.
The fund will use its operational experience, networks, understanding of governance, social and environmental issues to work with the boards and promoters, advocate them with governments, highlight good stories and other tools to generate returns. It will also push these companies to operate in a sustainable and responsible manner.
“In comparison with other markets, the need and opportunity for higher ESG standards in India are enormous,” the fund said in a statement. The fund will take a private equity approach while investing, which entails deeper engagement with the management to influence strategy to enhance ESG performance.
“This pool of capital in the fund will act as a catalyst to force businesses to think hard about their choices, and offers a viable path to promoters who wish to add value to the communities they work in and long-term benefits to their shareholders,” Quantum’s Ajit Dayal, who will lead the investment team, said. The fund will seek to demonstrate that driving beneficial ESG outcomes delivers strong financial returns and that in India as elsewhere, you can do well and outperform by doing good.