SEBI Mandate to Monitor ESG Risks & Opportunities

Author: thinkinglegal | March 13, 2020 - 18:56 | Tags: Regulatory Advisory

The Securities and Exchange Board of India (SEBI”), in its Stewardship Code effective from April 1, 2020, has mandated that institutional investors should monitor Environmental, Social and Governance (“ESG”) risks and opportunities. Globally, institutions and funds are keen to invest in companies that follow ESG principles. Many venture funds have institutional investors that require them to introduce ESG principles for their portfolio. In India, the trend of venture funds mandating their portfolio companies to follow ESG principles is growing.

ESG Framework consists of a set of principles that aim at introducing impact-based investing in companies with a view to achieve sustainability. A set of guidelines for integrating ESG in Private Equity was prepared by Principles of Responsible Investment in partnership with United Nations. The initiative is driven by the objective of achieving the 17 Sustainable Development Goals as identified by the United Nations. Increasingly, investors are including ESG considerations in their decision-making process and also monitoring adherence to ESG principles by portfolio companies.

The companies that address the concerns of the investors and have modelled their products, services, business processes in such a manner so as to offer alignment to the ESG framework have been preferred by investors in recent times. These companies have also witnessed higher valuation. While there is no standardised format of reporting for ESG principles, fund managers should incorporate the various guidelines issued by international organisations into their own reporting framework in furtherance of the adoption of the ESG principles.

This post has been contributed by Ms. Vaneesa Agrawal and Mr. Sanyukta Srivastav.

[DISCLAIMER:  This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. The information contained herein does not constitute legal or a professional advice.]