Climate change consciousness has led to global investment firms prioritising sustainable investments, not only for long-term financial returns but to also provide positive social effects. While investments in sustainability account for one-third of assets under management (AuM) in the United States and 36 per cent of AuM globally, the Indian sustainable investment space only makes up 15 per cent of AuM, by private equity (PE) and venture capital (VC) firms currently. However, growth in space is quickly gaining momentum.
According to a report by Benori Knowledge, a provider of custom research and analytics solutions, sustainable investments by Indian PE and VC firms are projected to grow to US$ 125 billion by 2026, at a five-year CAGR of 46 per cent. By then, it is also estimated that sustainable investments would make up 40% of AuM by Indian PE and VC firms.
The factors encouraging sustainable investment ventures in the country are consumer demand for socially responsible brand behaviour, government policies and the massive growth of cleantech and green initiatives. According to Benori research, the sectors attracting the most sustainable investments are renewable energy, agritech, e-mobility and waste management. E-mobility especially has been of interest to PEs and VCs, with investments into the sector doubling between the period of 2019-2022. Within the next five years alone, the electric vehicle market in India is projected to attract investments worth INR 94,000 crores, states the Benori report.
Companies across all sectors are now moving towards strengthening their sustainability parameters. The consideration for sustainable practices within businesses when making investments is also rising, says the Benori report. Stakeholders are becoming more cautious of the outcomes of their investments, preferring to invest in companies with greater sustainability interests, such as ESG considerations that also bring a long-lasting impact on their credibility.
Benori spoke to leaders in the sustainable investment domain for this report. Maninder Singh Juneja, Partner, True North, said “To follow ESG practices is not expensive, it requires diligence, hard work, and in the long run is very rewarding for the company, employee and investors.”
Rupali Gupta, Managing Director, EverSource Capital said, “Investors have increasingly begun to recognise that just financial metrics are not enough. The focus is shifting towards investing into businesses that provide not only good returns but also sustainable returns.”
Reflecting on the findings, Ashish Gupta, Co-founder and CEO, Benori, said, “Growing sustainable demands can only be mitigated by universal acceptance. Slowly but steadily, the investor community will realise that by harnessing sustainable opportunities, their firms will get long-term value and endurance. To strengthen ESG practices and reduce the reluctance towards sustainable investing in the country, there should be significant regulatory push and guidance asking for disclosures that must be supplied in a timely manner.”