Environmental, Social, and Governance ("ESG") investing is a type of long-term investing that assesses a company's ethical contribution to all relevant stakeholders. It is one of the most rapidly growing techniques of long-term investing. Portfolio designs that include investors' moral beliefs, institutional missions, and social and environmental purposes meet additional investing demands. ESG is not a novel notion; a corporation's social responsibilities have long been acknowledged and articulated in terms of corporate social responsibility ("CSR"). Both ESG and CSR, as components of corporate governance, increasingly overlap in their application. The fundamentals of ESG and CSR are the same: organisations adopting practises and policies that are intended to have a good impact on the world.
In the present times, ESG ratings are gaining popularity in the global market, and many corporate and public-private companies are now selling ESG portfolios. Many mutual funds, brokerage firms, and robo-advisors are also selling ESG-compliant products. Indian investors are also following the global trend of ESG becoming increasingly prominent. A rising number of ESG plans by mutual funds and investment in such schemes were noticed in the SEBI bulletin report released in March 2021. There are a number of well-known worldwide legislations and systems for demarcating, reporting and establishing the aspects on ESG. Some of the global initiatives and frameworks include Paris Agreement, UN Sustainable Development Goals ("SDGs"), Green, Social and Sustainability bonds, UN Initiatives and a few others. Some frameworks entail Global Reporting Initiative, United Nations Global Compact, Sustainability Accounting Standards Board and a few others that have played a crucial role in sustaining ESG at a global platform. Furthermore, countries like the United States of America, France, and even the European Union have established well-defined Regulatory Frameworks for Corporate Reporting Standards.
From an Indian perspective, ESG reporting was first introduced through Business Responsibility Reports ("BRR") and CSR reporting. The BRR is a report (part of the annual report) that the top 1000 listed businesses by market capitalization submit to Indian stock exchanges. In April 2014, the Indian government enacted a comprehensive CSR system as part of the then-new Companies Act, 2013. From an investment standpoint, ESG funds are rapidly expanding in the Indian Mutual Fund Industry and are among the fastest growing globally. In particular, the revenues of a Green Bond issue are earmarked for use in financing 'green' projects. ESG investing is growing at an exponential rate, reflecting investors' interest in ESG principles. As a result, it must be seen how the jumbled individual parameters of E, S, and G factors are globally gathered together, resulting in a standard reporting mechanism. ESG now accounts for roughly one-quarter of all professionally managed assets globally and is a key indicator in investment decision-making and will pave a long way towards establishing and instating a pathway for success of sustainability in Investment.
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