SEBI’s Broadened Scope of ESG Category Encouraging Sustainability Efforts

The scope of the Environmental, Social, and Governance (ESG) category initiative is expanding globally. Post-pandemic, the investors have shown higher interest in investing in the companies that are responsible for addressing ‘sustainability’ through their operations and strategies. This has led the Security Exchange Board of India (SEBI) to expand the scope of ESG thematic categories for investment in the securities market.

Now the investors will be able to invest under six new categories of ESG contrary to the current permission of mutual fund investment with the thematic category for equity scheme only.  As EY report data shows for around 90% of international investors the ESG performance of any company, receives priority while investing along with a major interest in decarbonization.

India being a signatory of the Paris Agreement of UNFCCC, 2021 has been in the nascent stage of developing the interest of investors, businesses, and corporate entities to work towards sustainably safeguarding the environment through systematic integration of ESG principles in their market operations. This will open up a multi-trillion-dollar ESG pool for Indian companies making ESG a part of their comprehensive business policy to increase growth and credit, along with fulfilling their capital requirement through the security market at lower rates.

After RBI joined the Network for Greening the Financial System (NGFS) to be instrumental in driving the policy related to global green finance, SEBI has also come up with broadening its themed categories to make things easy for forward-looking organizations. This will give an extra push to such companies that are performing more responsibly than their peers and attract more investment to boost economic growth with the help of ecologically impactful investment opportunities and sustainable environment practices. This will in turn expected to create around 1 million green jobs for employable Indian youths.

This broadened scope will help investors at the beginner level to understand the process and business strategies that are working to eliminate emissions and show climate resilience.  To gain investors’ interest through optimal utilization of resources, use of renewable energy solutions, and streamlining their people and processes to reduce climate-related risks and open up more integrated sustainable investment opportunities, the companies following the ESG principles will better perform under SEBI’s strengthened regulatory environment.