ADBI Working Paper Series

RESURGENCE OF ESG INVESTMENTS IN

INDIA: TOWARD A SUSTAINABLE ECONOMY

Gopal K. Sarangi

No. 1284
August 2021

Asian Development Bank Institute

 Gopal K. Sarangi is an assistant professor at the TERI School of Advanced Studies, New
Delhi, India.
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Suggested citation:

Sarangi, G. K. 2021. Resurgence of ESG Investments in India: Toward a Sustainable

Economy. ADBI Working Paper 1284. Tokyo: Asian Development Bank Institute.

Available: https://www.adb.org/publications/resurgence-esg-investments-india-toward-
sustainable-economy

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Email: [email protected]

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© 2021 Asian Development Bank Institute

ADBI Working Paper 1284 G. K. Sarangi

Abstract

ESG investments have attracted wider attention from both investors and customers
worldwide. These investments largely follow a triple-bottom-line approach that combines
financial returns with environmental and social norms. The study in this context carries out a
detailed assessment of the ESG development and evolution trajectory in India, maps the
legal and regulatory landscape governing ESG investments, and conducts a sustainability
evaluation of a set of corporate entities. It uses a mixed-method approach for its assessment.
The findings suggest that ESG integrated assets have outperformed their counterparts. In
addition, it emerges from the analysis that companies have performed relatively better in
policy disclosure and governance parameters of ESG integration than in environmental and
social factors. The mapping of ESG policies and regulations reveals that there has been a
gradual widening of scope of ESG policies and that the ESG policy environment is moving
away from a voluntary regime to a mandatory one. Finally, the sustainability assessment of a
select set of corporate entities indicates that, in terms of both ambitions and practices, they
place disproportionate emphasis on environmental aspects of sustainability and neglect
social dimensions, both in their declarations and in their implementations.

Keywords: ESG investments, ESG policies and regulation, sustainability assessment of

corporate entities, India

JEL Classification: M14, Q56, Q01

ADBI Working Paper 1284 G. K. Sarangi

Contents

1. INTRODUCTION ..........................................................................................................1

2. MOUNTING ESG INVESTMENTS: THE GLOBAL SCENARIO ..................................4

3. ESG INVESTMENT LANDSCAPE IN INDIA................................................................6

4. LEGAL AND INSTITUTIONAL FRAMEWORK GOVERNING

ESG INVESTMENTS IN INDIA ....................................................................................9

5. ANALYSING THE SUSTAINABILITY INITIATIVES OF CORPORATE ENTITIES:

SOME OBSERVATIONS ...........................................................................................11

6. CONCLUSION ...........................................................................................................13

REFERENCES ......................................................................................................................15
ADBI Working Paper 1284 G. K. Sarangi

1. INTRODUCTION
Recently, a transformation has taken place in the flow, pattern, and structure of
investments, with a specific thrust on the sustainability of investments and ESG
investments. This has been both a global and a domestic phenomenon, spreading
across several economies in the world. It is increasingly apparent that investors are
moving beyond the conventional norms of financial statements of business units and
placing more emphasis on ESG investments (Bhavani and Sharma 2019). It seems
that traditional financial metrics to weigh investments are increasingly inadequate and
fall short of meeting the rising demand of investors and customers to extend beyond
the monetary measures. It is also noticeable that conventional investments have
always pursued a narrow self-interest and often left adverse environmental and social
footprints (D’Souza 2020), hence the need to revisit them. Similarly, non-financial
measures, such as environmental, social, and governance (ESG) factors, are high on
investors’ agenda when it comes to decision making (World Bank 2018).
Investment decision-making processes and investment analyses are increasingly
emphasizing the sustainability of investments and adherence to environmental, social,
and governance (ESG) norms. These forms of investments always involve a dichotomy
between simple profit maximization and ESG integrated profit maximization options.
ESG investments, often meaning socially responsible investments, have experienced
rapid growth since the early 21st century. More precisely, it is possible to trace the
genesis of ESG investments back to 2004, with the United Nations (UN) leading the
initial initiatives in this regard. Incorporating ESG factors arguably has salutary effects
on business entities in terms of enhancing their efficiency and productivity and
supporting their long-term risk management. The literature has pointed out that ESG
integrated corporate entities have generated more profits than non-ESG integrated
corporate houses (Korwatanasakul and Majoe 2019). While a focus on financial
investments could result in windfall short-term gains, an emphasis on ESG investments
could enhance business sustainability in the long run. Such investments largely follow
a triple-bottom-line approach that combines financial returns with environmental and
social norms. While environment and social factors are important, at the same time, it
is crucial to see how they integrate with business governance.
One of the crucial ingredients of sustainable investment is transparent ESG reporting
and disclosure of information. While ESG reporting and disclosure have a legal
standing in many countries, they are voluntary in nature in many others. The reporting
and disclosure of information are vital for investors and customers to understand
corporate houses’ long-term business and investment strategies and assess their
sustainability quotient. This information has become essential for investors to manage
their investment risks and understand companies’ strategy and purpose (PWC
2020). In fact, many scoring and rating systems have evolved in the past to offer an
understanding of the ESG performance of companies in varying degrees and forms
across countries.
A multitude of factors have contributed to such transformation in investment styles
and patterns and have made it imperative to integrate sustainability elements into
the conventional financial investment systems. Recent observations have indicated
that corporations have become victims of poor governance systems, resulting in poor
societal and environmental outcomes. Global examples of high-profile imprudent
material environmental, social, and governance incidents, such as the Deepwater
Horizon oil spill, Volkswagen’s breaching of environmental norms, and Facebook’s data
privacy disclosure, are examples of such poor governance systems and structures,

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reiterating the need to integrate the ESG factors into investment decision-making
processes (United Nations Principles of Responsible Investment (UNPRI) 2020). The
resurgence of ESG investments accelerated further with the global financial crisis of
2007–08, which forcefully proposed the imperative of implementing measures beyond
the existing traditional financial statements and reporting structures of business units
and corporations and devising alternative approaches to the conventional monetary
approach. In fact, the financial crisis of 2008 ushered in a new era for ESG investment
globally by questioning and revisiting the conventional financial investment patterns
and mechanisms through the integration of the ESG principles into the investment
domain. The introduction of new investment options and instruments built on the notion
of ESG and catered to the overarching societal and environmental goals.
The increasing perils of the environmental and climate-related crisis have recently
emerged as compelling factors for countries to mobilize private investors as important
stakeholders in achieving the sustainable development goals (SDGs) by incorporating
ESG factors into investment processes and investment decision-making systems.
There is an expectation that business entities will play a pivotal role in and bear
significant social and environmental responsibilities for taking appropriate measures to
minimize the mounting environmental and societal crisis. In fact, growing environmental
and climate concerns, such as the increasing GHG emissions, sea-level rise,
increasing frequency of heat waves, and unmanageable waste generation, are posing
threats to the sustainability of any economy. For instance, India is one of the most
vulnerable countries to climate change and natural disasters (Eckstein et al. 2019).
Similarly, a host of social factors, such as the violation of human rights and labor
rights, rising cases of child labor, cases of gender inequality, and occupational health
and safety concerns, have reiterated the importance of adhering to ESG principles in
investment decision-making processes. Researchers have highlighted the increasing
need to inform consumers and investors about the adverse impacts of exploitative
labor practices, poor working and health conditions, and poor environmental
management standards and practices of corporations and demanded that governments
tighten the environmental standards and social policies for corporations and
motivate them to adopt responsible business behavior and practices (Bansal and
Gangopadhyay 2003; Ervin et al. 2012; Khanna and Speir 2013).
Further, various global declarations and global forums have emphasized ESG
investments. The UN has taken leadership in this arena. Several key initiatives of
the UN have clearly demonstrated the importance that it assigns to ESG integrated
investments at the global scale. Initiatives such as the Principles of Responsible
Investment (UNPRIs), UN Global Compact, and UNEP Finance Initiative (UNEP-FI)
are evidence of such thrusts toward sustainable global transformation through ESG
investments. More importantly, the declaration of the SDGs is a testament to such a
global focus on ESG investments and the sustainability of investments. In addition,
the SDGs reportedly place private investors in the central position in arresting and
minimizing the growing environmental and social problems (Nemoto and Liu 2020).
Several of these goals are likely to be met through private investments; hence, ESG
investments can be a game changer in meeting the SDGs (Korwatanasakul 2020).
Public financing sources alone arguably cannot meet the identified challenges
through the SDGs; rather, they require active support from and participation of
private investors. The UN’s projections reveal that achieving the SDGs for developing
countries requires investments of USD 3.9 trillion annually, and it expects that
substantial investments will flow from impact investors to achieve such gigantic
investments.

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The strong linkage between ESG investments and macro-economic variables has also
spurred the drive toward ESG investments. In addition, studies have pointed out the
macro-economic benefits of such a transformation in the investment environment, with
increasing recognition of ESG factors as crucial elements of investment patterns. For
instance, they have posited that ESG embedded investments would result in the
minimization of the default risk, hence reducing countries’ cost of sovereign borrowing
(Nemoto and Liu 2020).
In fact, globally, ESG investments have been gathering momentum and pace quickly
in recent years. For instance, the number of PRI signatories within the UN is clear
evidence of the global recognition of and thrust toward sustainable investments. The
latest statistics suggest that the number of signatories has increased to 7000 across
135 countries. Regionally, the US, Europe, and Australia are steering such sustainable
investments and are far ahead in the curve; however, some Asian countries, like Japan
and Malaysia, are surging ahead. There is a further expectation that Asia, emerging as
a global leader in the coming decades, should play a prominent role in the sustainable
development agenda.
Globally, ESG investments soared to a new height of USD 34.7 trillion in 2018 in
five major markets. ESG investments have grown 36% since 2016, and the flow is
maintaining its upward trajectory (GSIA 2018). The US and Europe continue to
be the largest contributors, and, within Asia and the Pacific, Australia, Japan, and
New Zealand are the major contributors with a quickly expanding share. It is worth
highlighting that ESG investments have experienced a dramatic rise even during the
COVID-19 pandemic. Globally, equity funds with ESG mandates achieved a record
jump to USD 168 billion in 2020, almost triple the figure in 2019 (Jethmalani 2021).
Brandt and Srimurthy (2021) compared Socially Responsible Investing (SRI)/ESG
equity funds with non-SRI/ESG funds, revealing that SRI/ESG equity funds have
performed 4% better than their counterpart non-SRI/ESG funds on a continuous basis
over the last 4 years. Historically, in terms of assets, ESG investments started with
equity investment, with a recent focus on bond markets.
Though ESG investments are at a very nascent stage in India, they are increasingly
gaining traction in the country. The thrust on climate-friendly investments and the focus
on private sector investment for green energy in the country have primarily reinforced
through recent policy push. Even the Economic Survey 2020–21 of the Government of
India (GoI 2021) explicitly recognized the need to integrate climate and financial
policies and identified a host of measures driving ESG investments in the country.
However, the ESG investments in the Indian context have received scant research
attention so far. There is a dearth of scholarly literature in this area, though some
efforts have taken place under the larger umbrella of the sustainability of the corporate
sector. In this context, this paper has the following set of research aims:
• To assess the ESG status, evolution, and development trajectory in the country;
• To map the legal, regulatory, and institutional landscape governing the ESG
investment in the country;
• To present an analysis of corporate performance with integrated sustainability
features.
The paper uses various secondary data and information for analysis. In addition, it
examines sustainability assessment of a dozen corporate entities to identify the key
sustainability characters and thrusts of these entities. It proposes a framework to
capture the drivers of sustainability of Indian corporate entities and their dynamic

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nature and character. It uses both qualitative and quantitative techniques for the
analysis.
The structure of the paper is as follows. The next section maps the global ESG
investment scenario. The third section offers a nuanced understanding of ESG
developments in India. The fourth section presents the legal and institutional landscape
of ESG investments in India. The fifth section contains a sustainability analysis of a
dozen Indian corporate bodies, and the final section concludes the paper.

2. MOUNTING ESG INVESTMENTS:

THE GLOBAL SCENARIO
Globally, ESG investments have achieved momentum as a mechanism attracting both
investors and consumers. There are at least three major direct drivers of such a rise
in ESG investments. There is increasing recognition that integrating ESG factors
could generate salutary effects on investors’ risks and returns. The second important
consideration is the aspirations of the beneficiaries and clients about the transparency
of the money that companies are investing and the role that ESG investments can play
in meeting these aspirations. The third important factor is very much connected with
the increasing legal framework for ESG investments and the legal imperatives for such
investments in various countries across the world.
Observations have indicated increasing interest in ESG integration in investment
decision-making processes worldwide, with an annual growth rate of 24%.
Geographically, the US and Europe are the largest contributors (Korwatanasakul
2020). Though ESG integration has yet to accelerate in Asia, there has been a surging
demand for ESG investments in Asian countries. Countries like Japan are the
front-runners, and several other countries are extending their ESG investments. The
Global Sustainable Investment Alliance (GSIA) reported that “do good” investment is
rising fast globally and that investors consider it as a lucrative business option. Recent
information from the MSCI indices has revealed that information technology (IT) as a
sector has become the leader in integrating the ESGs into investment decision-making
processes, followed by health care and the financial sector (Bhatt 2020). The
declaration of the SDGs has further reinforced the need to drive investments in a
more sustainable manner. Some estimates have suggested that the climate
commitments that the Paris Agreement enshrines and the SDGs require investments of
approximately USD 7 trillion per year. Importantly, there is an expectation that private
finance and private investors will mobilize a substantial chunk of this investment. The
available information indicates that the value of ESG investments globally has doubled
in the last 4 years and reached a new high of USD 40.5 trillion in 2020. ESG integrated
investment indices have even outperformed their peers during the COVID-19 period,
which clearly implies that there is an increasing appetite for such investments among
investors and business houses.
In fact, the UN has assigned primacy to ESG investments and has implemented
several noteworthy initiatives in this sphere, starting in 2004. The UN’s Principles of
Responsible Investment (UNPRIs) institutionalized a network of ESG investors. The
latest information reveals that the number of signatories in the UN PRIs has increased
to 7000 across 135 countries (Figure 1). The UN has undertaken a host of other related
initiatives to make signatories act as drivers of change, such as Climate Action 100+,
which specifically aims to ensure that the 167 largest corporate GHG emitters take
proactive actions to mitigate climate change. More than 500 investors with investment
assets of USD 47 trillion aim to achieve net zero emission transitions under this

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scheme. The benchmarks for companies within this action involve a range of
sustainability indicators, such as ambition, target and goal, decarbonization strategy,
capital alignment, climate support policy, governance, just transition, and reporting.
Similarly, the PRIs actively encourage nation states to integrate climate change into
their COVID-19 recovery process too. Related sustainability initiatives, such as the “UN
Convened Net-Zero Asset Owners Alliance,” which launched in 2019, focuses on a
variety of activities, such as monitoring, reporting, verification, and engagement with
asset owners, managers, and corporations. The “Net Zero Asset Managers Initiative,”
with its commitment to extending support for the net zero emission goals of 2050, is a
similar initiative. This global initiative has allocated 9 trillion USD of assets to achieving
the stated goals, and 30 signatories have joined it. The Sustainable Stock Exchange
(SSE), which UNCTAD is promoting, has undertaken a similar effort to drive ESG
investments. The primary goal of such a global platform is to improve the performance
of stock exchanges in terms of sustainable investment. As a result of these initiatives,
there has been a significant improvement in companies’ disclosure requirements with
regard to the environmental and social impacts of their activities, initiatives and
investments. In addition, to aid policy makers in the process, the UN has developed
ESG policy toolkits to support policy makers of different countries in their effort to
streamline their ESG policy making. Apart from the UN, several other initiatives are
worth noting. For instance, RE100, a global initiative, aims to encourage business
entities to commit to becoming green and procure 100% of their energy from
renewables. Nearly 300 corporate houses have joined in this initiative so far, driving the
transition toward sustainable sourcing of energy.
In addition, the Global Reporting Initiative (GRI) intends to introduce transparency and
increase the impact of corporate entities by setting global standards and sharing
sustainability reporting information with larger stakeholders, such as investors, policy
makers, civil society organizations, labor organizations, and so on. It has created one
of the largest networks of 10,000 GRI reporters, spread over 100 countries, to enhance
the sustainability reporting among countries.

Figure 1: Number of Signatories and Asset Owners

Source: UNPRI (2020).

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Studies also have reported a dramatic surge in investment assets with ESG embedded
features. The latest available information shows that SRI/ESG equity funds almost
doubled in 2020 and that SRI/ESG bonds similarly experienced a 100% increase.
Importantly, equity and bonds with ESG embedded features have achieved better
returns than their peers. In terms of sectors, technology, telecoms, and health care
are the areas that have attracted most of the ESG equity and bond funds. The figure
below (Figure 2) indicates that SRI/ESG funds have continuously outperformed their
counterpart non-SRI/ESG funds in the last 6 years. Importantly, the trend has
continued even during the pandemic.

Figure 2: The Comparative Performance of SRI/ESG Funds

versus Non-SRI/ESG Funds

Source: Brandt and Srimurthy (2021).

It is possible to ascertain from the above that there has been clear emphasis at the
global scale on promoting and accelerating ESG investments. The UN has taken
special initiatives on ESG investments, and the declaration of the SDGs reflects the
needs and priorities that the ESGs should emphasize. Importantly, the comparison of
ESG integrated assets non-ESG assets shows that the former are better performers
than their later counterparts.

3. ESG INVESTMENT LANDSCAPE IN INDIA

ESG Investments in India are at very nascent stage of development, though they
have been evolving fast. Considering India’s developmental priorities, the integration of
ESG elements into the investment decision making processes is becoming crucial to
address the persisting societal conundrums and increasing environmental and climate
threats (GoI 2021). This is also in sync with meeting the country’s SDG goals. Studies
have pointed out that meeting the SDGs in India requires an annual investment of USD
0.6 trillion (Impact Investors Council (IIC) 2020). The current thrust on climate change
and upscaling green energy investments clearly highlights the country’s focus on and
need for ESG investments. The global commitments made by the country, such as
reducing its carbon emissions by 30% by 2050 and procuring 40% of its energy from
non-fossil fuel sources by 2030, are clear indications of its focus and the imperative to

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integrate ESG factors into the investment process. Recently, the Government of
India has realized the importance of integrating ESG factors into business processes
and has actively promoted this through various reforms and regulations. The latest
development in this sphere is evident in the recent Economic Survey, which
emphatically pointed out the need to streamline the financing for sustainable
development (GoI 2021).
It is worth noting some of the sustainability initiatives that Indian corporate leaders have
undertaken. One such initiative is the participation of Indian corporations in the RE100
global movement, which urges corporations to go green. This is also very much in line
with the business value proposition of business entities in India as the industrial
electricity consumption in India constitutes more than 40% of the total electricity
consumption (Sarangi and Taghizadeh-Hesary 2021). Many Indian corporate houses,
such as Infosys, Mahindra & Mahindra, Dalmia Cement, and Tata Motors, have
become part of RE100 and have voluntarily committed to sourcing their energy from
renewables (Mudaliar and Telang 2020). For instance, Dalmia company has committed
to using entirely renewables by 2030. Businesses in India have realized the imperative
of seizing the opportunity to tap renewables, and more and more corporate entities
are adopting this approach. Similarly, under the corporate renewable power purchase
agreements (PPAs), many Indian corporations are performing exceedingly well. India
ranks as the second-largest market as far as the corporate renewable PPAs are
concerned. Several Indian corporations also have found a place in the Dow Jones
Sustainability Index. For instance, corporate houses such as Mahindra & Mahindra,
Godrej Consumer Products, Infosys, Tata Motors, Glenmark, Havells India, M&M
Financial Services, Hindalco Industries, Tata Steel, Tech Mahindra, and Wipro have
become part of Dow Jones—an emerging market sustainability index. Similarly, several
Indian companies have undertaken a host of voluntary initiatives. For instance, several
cement companies in India have undertaken initiatives to generate energy from waste,
and the electricity that they produce through this process will eventually reduce
their reliance on fuels. A quick mapping of these sustainability initiatives of Indian
corporations reveals that many of them are performing well in terms of reducing their
carbon footprints by integrating green energy into their operations and adopting energy
efficiency principles.
Indian corporations are increasingly integrating ESG factors into their business
decision-making process. For instance, several asset management companies, such
as Axis Mutual Fund, ICICI Prudential, and Aditya Birla Sun Life, have launched ESG
integrated schemes (Jethmalani 2021) and are increasing adopting ESG norms in their
investment decision-making processes. Information from the National Stock Exchange
(NSE) revealed that ESG indexed companies have fared well compared with non-ESG
indexed companies.
A study carrying out an evaluation of 50 listed companies in India revealed some
interesting facets of Indian companies’ ESG performance (NSE 2020). For instance,
it finds that companies have performed comparatively better in terms of policy
disclosures than other ESG factors, such as governance, environmental, and social
factors. Governance as an ESG factor has emerged as the most prominent of all
the factors, whereas social factors received the lowest priority. Further, of these
50 companies, the top three companies operate in the automobile, chemicals, and
consumer goods industries, respectively, whereas metals and mining emerge as the
bottom-most industry in terms of performance (Figure 3).

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Figure 3: Indian Companies’ Average Score for Various ESG Factors

Source: NSE (2020).

Figure 4: Comparative Performance of MSCI India ESG Leaders Index

versus MSCI India

Source: MSCI (2021).

A comparison between companies in the MSCI India ESG Leaders Index and their
counterpart sector peers revealed that ESG integrated indices have performed better
than their peers (MSCI 2021) (Figure 4). More importantly, the performance of
ESG integrated indices continued to be better even during the COVID-19 pandemic.
Several key corporate entities, such as Asian Paints, Axis Bank, Bharti Airtel, HCL
Tech, HDFC, HUL, Infosys, Nestle India, Reliance Industries, and TCS, are positioned
high on the MSCI Indian ESG leaders Index. Of the various ESG factors, the
governance factor is emerging as a major contributor to the ESG performance of Indian
corporations. A sectoral comparison of ESG performance indices revealed that the IT
sector has emerged as a leader (with 26% weightage), followed by energy (close to
25% weightage). Hence, the IT and energy sectors are effectively integrating ESG
factors into their investment plans and decision-making processes in a much better
way than companies in other sectors (Bhatt 2020).

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Another related area that has experienced some development is impact investing in
India. The available information reveals that impact investors collectively were able
to raise capital of USD 11 billion in the last decade (2010–20), covering more than
550 profit enterprising units and affecting about 500 million beneficiaries (IIC
2020). The beneficiaries are largely from low-income class communities. Key sectors
attracting such investors are agriculture, health, education, energy, technology for
others, and so on.
To summarize, (1) there is an increasing appetite for ESG integrated assets, and
(2) the performance of ESG integrated investments is better than that of their
counterparts. They even maintained consistency during the COVID-19 pandemic.
Companies performed relatively better in policy disclosure and governance parameters
than in environmental and social factors. Of all the factors, social factors have received
the lowest priority.

4. LEGAL AND INSTITUTIONAL FRAMEWORK

GOVERNING ESG INVESTMENTS IN INDIA
Though ESG investments in India are at the budding stage, the government has
implemented a host of policy and regulatory initiatives to drive them. Institutionally,
the Ministry of Corporate Affairs (MCA) has assumed the stellar role in promoting
sustainable investments in India, and from time to time it has produced policies and
guidelines for corporations to adopt the Principles of Responsible Investment. The
capital market regulator, the Securities and Exchange Board of India (SEBI), has
supported the efforts of the MCA through its regulations on the matters of ESG
investment in India. In fact, the MCA and the SEBI are working together to implement
guidelines and regulations related to ESG investments in India. In addition, the
government formed the Impact Investors Council (IIC), an industry representative body,
to drive the impact investments in India and to represent the impact investors in
the country.
One of the first initiatives in this direction was the “Voluntary Guidelines on Corporate
Social Responsibility,” which the Ministry of Corporate Affairs (MCA) declared in 2009
to integrate sustainability into business practices and business decision-making
processes. They identified six core elements as key sustainability practices for
business entities to adopt. Around that time, in 2010, the Department of Public
Enterprises (DPE) designed a CSR guideline to encourage central public sector
enterprises to promote CSR activities. The Ministry of Corporate Affairs followed this
with further guidelines, the “National Voluntary Guidelines on Social, Environmental
and Economic Responsibilities of Business, 2011” (NVGs), setting out the importance
of the environmental, social, and economic responsibilities of corporate entities and
the need to integrate them into business practices and investment decision-making
processes.
This promulgation of the New Corporate and Social Responsibility Rule 2014
prescribed under the Companies Act 2013 followed, and this clearly emphasized the
need for ESG investments and the adoption of the ESG strategy. It mandated the
spending of a minimum of 2% of the profits of corporate entities on various socially
desirable sectors. A study carrying out a detailed mapping of CSR rules among Indian
firms revealed that expenses under CSR heads largely occur in social sectors covering
education, health care, community development, protecting the environment, protecting
gender equality and skill development, and so on (Bansal, Khanna, and Jain 2017).

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The next development in this respect was the pronouncement of the “National
Voluntary Guidelines for Responsible Financing,” which the government announced
in 2015. They aimed specifically to encourage the financial sector to adhere to the
principles of sustainable business practices. The guidelines set out eight specific
principles integrating various ESG aspects for financial sector enterprises to adopt
and five key implementation modalities. A further development in this space was
the declaration of the “National Guidelines on Responsible Business Conduct
(NGRBC)—2019.” The purpose of these guidelines is to support business enterprises
in adopting the principles of responsible conduct and responsible business behavior.
In addition, the constitution of a dedicated committee took place in 2020 to develop
the format for Annual Business Responsibility Reporting (ABRR) under the NGRBC
Guideline. It involved a fresh reporting structure called the “Business Responsibility
and Sustainability Report (BRSR)” to capture effectively the non-financial parameters
of both listed and unlisted companies. The committee also proposed to use the
information that the BRSR format captured for constructing sustainability indices.
Besides the above, from time to time, the capital market regulator, SEBI, has
announced multiple circulars on various aspects of sustainability investment in the
country and the reporting structure of such investments. For instance, the circular that it
issued in 2012 mandates 100 listed companies to follow a proper reporting structure of
their business through the “Annual publishing of Business Responsibility Report
(ABRR)” format. The ABRR reporting structure intended to promote corporate entities’
adoption of the NVG principles that the MCA declared in 2011. Further, it extended the
ABRR reporting structure to 500 listed companies in 2015–16 and to 1000 listed
companies in 2019. In addition, it created the necessary regulations to facilitate the
creation of green bonds or social impact bonds. For instance, the SEBI promulgated
the Green Bond Guidelines in 2017, allowing the listing of green bonds on Indian stock
exchanges. The latest available information shows that the issuance of global green
bonds reached USD 1 trillion in 2020. A further development in this direction was
the proposal to institutionalize a social stock exchange (SSE) within the purview of
the SEBI to mobilize capital through social enterprises (GoI 2021). In this regard, the
SEBI set up a Working Group in 2019 to propose the reporting structure as well as
the disclosure requirements related to various aspects of ESG investments, such as
financials, governance, social impacts, social auditing, and so on. Figure 5 presents
a detailed map of the policy and regulatory framework governing ESG investment
in India.
In addition to the guidelines and principles, the Government of India has undertaken a
host of other initiatives to mainstream the ESG policy making in India. For instance, in
2015, the Reserve Bank of India (RBI) reported the inclusion of lending to social
infrastructure and small-scale renewables within its priority sector lending items. This
gained further impetus by doubling of the loan limit to these sectors to 300 million INR
in 2020. India has also joined various global initiatives, such as the European
Commission-led International Platform on Sustainable Finance (IPSF), as a founding
member in 2019. The platform serves as a forum for driving environmentally
sustainable finance.

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Figure 5: Map of the Policy and Regulatory Framework

for ESG Investment in India

Source: Author’s compilation.

The assessment of the policy and legal pronouncements around ESG investing in India
unraveled some interesting patterns and trajectories. First, the scope of policies
has evolved over the years, in tune with the growing emphasis on ESG integrated
investments; second, policies and regulations have become stringent over time,
moving gradually from a voluntary regime to a mandatory one; and, third, the emphasis
is more on reporting and disclosure of information by the corporate entities.

5. ANALYSING THE SUSTAINABILITY INITIATIVES OF

CORPORATE ENTITIES: SOME OBSERVATIONS
An assessment of a dozen Indian corporate entities has revealed some interesting
facets of their sustainability initiatives. The common feature of the chosen entities is
that most of these appear in various ESG integrated corporate indices database and
have some ESG features.
A quick mapping of the sustainability initiatives unfolds that it is possible to structure
these entities around four major action points. First, many of them have spelt out
sustainability strategies, which are largely their vision statements to adopt various
sustainability goals in the future. Second, most of them are members of various
national and international business coalitions, which essentially reflect their
commitments to achieving sustainable development in their business practices and
business behavior. The third element is about key sustainability targets and goals, in
relation to which these corporate entities have laid down their specific sustainability
plans for the future based on key sustainability parameters. Finally, the fourth point
concerns the sustainability practices that the companies have adopted. A detailed
mapping of the sustainability strategies of these corporate entities revealed that, in
most cases, the strategy statements involve offering mechanisms for integrating ESG
factors into business practices and operations. A deep dive into the business coalition
membership of these corporations indicated that they are part of various forums and
platforms, such as their own industry groups and associations with sustainability
implications or other external sustainability forums and platforms. For instance, Tata

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ADBI Working Paper 1284 G. K. Sarangi

Steel is part of the World Steel Signatory Charter, ACC and Ambuja are part of the
Cement Sustainability Initiative (which is part of WBCSD), and Dalmia is part of RE100
and EP100. In many cases, corporations have joined various forums voluntarily,
without any mandatory compliance. For instance, many of them are members of the
World Business Council for Sustainable Development (WBCSD) and some of them are
part of RE100. Interesting findings emerged when mapping sustainability ambitions are
examined in a detailed manner. Key environmental sustainability goals, such as the
reduction of GHG emissions, enhancing energy efficiency, procurement of green
energy, efficient use of water, waste management, and waste recycling, dominate the
ambitions (Figure 6). However, it is also clear from the initiatives undertaken by Indian
corporations that the social sector has been one of the neglected sectors in India and
has not received mainstream attention in their sustainability efforts, though there have
been some efforts at the CSR level in the social sector. It corroborates the findings of
other studies, such as that by the NSE (2020). Finally, information on the adoption and
implementation of sustainability practices indicates some visible progress, particularly
in the domain of RE procurement, attaining the energy efficiency goals, and managing
waste effectively.

Figure 6: Sustainability Agenda of Corporate Entities in India

Source: Author.

Drawing from the literature, coupled with review of ESG investment trends, and the
sustainability analysis of a select set of corporate entities, the study proposes a
framework that captures the dynamic nature of sustainability behavior and the drivers
of companies’ sustainability initiatives. It is possible to elicit from the framework that the
sustainability performance of corporate entities is a function of multiple internal and
external factors. The strength of these drivers will accordingly shape and characterize
the sustainability of corporations (Figure 7).

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ADBI Working Paper 1284 G. K. Sarangi

Figure 7: Framework for Assessing the Sustainability of Corporations in India

Source: Author’s compilation.

6. CONCLUSION
ESG investments have recently attracted wider attention from both investors and
customers. These investments have largely followed a triple-bottom-line approach that
combines financial returns with environmental and social norms. Many factors, such as
rising environmental and climate threats, combined with increasing social conundrums
and the need to drive the economy on a sustainable trajectory have evolved as
compelling factors for accelerating ESG investments. In addition, companies are
striving hard to map their goals with the declarations. The paper in this context has
carried out a detailed assessment of the ESG development trajectory in India, mapped
the legal and regulatory landscape governing ESG investments, and conducted a
sustainability evaluation of a selection of corporate entities. It has employed a mixed-
method approach for its assessment.
The findings are worth highlighting. It emerged from the study that there is an
increasing appetite for ESG integrated assets in the country. This is apparent from the
increasing interest of many mutual fund companies in such assets, as well as from
prospective investors and corporate entities. The performance of ESG integrated
investments in the country is better than that of their counterparts. Consistency in
performance is observed even continued during the COVID-19 pandemic. Companies
have performed relatively better in the policy disclosure and governance parameters
than in the environmental and social factors. Of all the factors, social factors have
received the lowest priority.
The assessment of policy and legal pronouncements around ESG investing in India
unravels some interesting patterns and trajectories. First, the scope of policies has
widened over the years, in line with the emphasis on ESG investments. Second, a
gradual movement from voluntary regimes to mandatory regimes has characterized the
evolution of policies. Third, there has been a recent emphasis on corporate entities’
reporting and disclosure of information.

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ADBI Working Paper 1284 G. K. Sarangi

The evaluation of the sustainability initiatives of a select set of corporate entities

indicated that key environmental sustainability goals, such as the reduction of GHG
emissions, enhancing energy efficiency, procurement of green energy, efficient use of
water, waste management, and waste recycling, dominate their ambitions, and they do
not assign equal priority to the social sector component of ESG investments. This is
also clearly in line with the findings of other studies, such as those of the NSE (2020).
In addition to the above, information on the adoption of sustainability practices
indicated some visible progress made particularly in the domain of RE procurement
and attaining the energy efficiency goals and effective waste management.
Finally, the proposed framework captures the dynamic nature of the sustainability
behavior and drivers of corporate entities. It shows that the sustainability performance
of corporate entities is a function of multiple factors, internal as well as external. The
strength of these drivers accordingly shapes and characterizes the sustainability of
corporations.

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ADBI Working Paper 1284 G. K. Sarangi

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