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ESG Issues Increase in Importance in India

In a signal that Environmental, Social and Governance (ESG) issues are becoming more and more critical in the finance sector, the Indian finance ministry is working to complete an ESG rating for the Life Insurance Corporation of India (LIC). India’s largest institutional investor is planning to list with an initial public offering (IPO) as early as the middle of the year. This is in line with the Government of India’s divestment plans.

With nearly US$500bn in assets and a valuation estimated up to US$203bn, the IPO is touted to be India’s largest to date and is bound to elicit interest from all quarters, domestically and globally,” IEEFA writes.

Life Insurance Corporation of India hopes to tap into the large and growing global pool of ESG-aligned assets. To do this, Life Insurance Corporation of India will need to have a credible ESG strategy which improves its material ESG risks and capitalizes on ESG opportunities. A high ESG rating will bring in investors, but it will also bring pressure from these investors to put current and future investments under an ESG lens.

“Bloomberg expects ESG assets to hit US$53 trillion by 2025, a third of global assets under management. Further, the United Nations-supported Principles for Responsible Investment (PRI), the world’s leading proponent of responsible investment, has more than 3,500 signatories, among them the world’s biggest institutional investors representing US$121tn in assets under management. These signatories commit to integrating ESG factors into investment decision making. Most of the largest companies in the world are already reporting their ESG profile in line with globally recognised frameworks or standards.”

Life Insurance Corporation holds more than a 1% stake in a wide range of Indian companies — from energy to banking to commodities. This move may lead to more Indian companies dealing with their Environment, Social and Government (ESG) issues.

“All companies in which LIC holds a stake will be scrutinised, especially energy companies given their weak environmental profile. The pressure to address ESG issues is increasingly an existential question for energy companies as governments worldwide set net-zero targets — and as the current media and wider public attention on climate change force companies to decarbonise.”

Good news indeed as we move towards a decarbonised world.

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David Waterworth is a retired teacher who divides his time between looking after his grandchildren and trying to make sure they have a planet to live on. He is long on Tesla [NASDAQ:TSLA].


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