Mumbai: Stocks of Indian companies which are committed to mitigating risks arising from climate change have fared better this year. The BSE Carbonex index has climbed 23.16% in comparison with an 18.91% jump in the benchmark Sensex so far this year.
In the three-year period till 6 September, the Carbonex has jumped 26.72% and the Sensex gained 17.15%, belying the belief that socially responsible investments find it tough to generate long-term performance.
The BSE Carbonex is a thematic index which measures companies’ ability to address climate change risk and opportunity. The index is based on the S&P BSE 100, with the constituent weights modified in accordance with the companies’ relative carbon performance as measured by the level of their greenhouse gas emissions and carbon policies.
It provides an effective way for equity investors to manage risks associated with climate change over the long term, by identifying key climate change exposure, sensitivity and responsiveness factors. The top five constituents of the BSE Carbonex index are HDFC Bank Ltd, ITC Ltd, Housing Development Finance Corp., Reliance Industries Ltd and Larsen and Toubro Ltd (L&T).
Based on sustainability investments, S&P BSE Indices also provides the BSE Greenex index, which consists of the top 25 stocks in the S&P BSE 100 that adopt relatively better energy-efficient practices.
The BSE Greenex gained 17.43% in the three-year period from till 6 September and has jumped 14.40% in the year to date. In the same three-year period, the BSE 100 surged 26.4%, and has gained 23.19% this year.
According to Ved Malla, associate director, product management at S&P BSE Indices, socially responsible investing has gained importance among market participants worldwide, and India too has aligned itself with the global trend, becoming more sensitive towards the environmental aspects of doing business.
“Many financial institutions and banks have already issued green bonds in India, which have been accepted well by green investors,” he said.
Even so, global investors remain more sensitive to environmental, social and governance (ESG) aspects as an investment theme.
Data from mutual fund research firm Morningstar shows that there is just one India-specific fund which focuses on the governance aspect of the ESG investment theme.
Investors in developed markets like Europe and the US are more conscious about parking funds in companies which not only create value for shareholders but also have good ESG policies.
According to data provided by Morningstar, as of July 2017, the asset size of funds dedicated to an ESG strategy was $193.19 billion in Europe and $15.16 billion in the US, while it was $28.54 billion in emerging markets, with an annualized growth rate of 6.6%, 45.4% and 27.6% over the three years from July 2014.
The only India-specific fund focused on governance as a part of the ESG strategy is Robeco Indian Equities, with a fund size of $42.24 million as of July.
“Green investment in India may be in a nascent stage, but it is evolving and expected to gain momentum in the coming years. Many stakeholders, including the government, corporations and market participants have become environmentally conscious and are looking to integrate environmental aspects of businesses in their mainstream investment strategies,” said S&P BSE Indices’ Malla.