ESG Investment : A Path to Sustainable Finance

Overview: ESG 

ESG stands for environment, social and governance. These areas speak about the most important areas where we protect the earth from depletion of resources, ensure social progress and improve global governance. With increasing risks of climate change, social inequalities, and corporate governance scandals, ESG has gained a significant traction over the years.

ESG is both a company metric and a societal concept. It originated as a societal demand for responsible business practices and later evolved into a corporate and investment metric for evaluating business risks and sustainability.

Key Milestones in ESG space

1. 1960-1970: Investors particularly in Europe and the U.S started reducing their investments in companies in tobacco and weapons. This marked the beginning of ethical investing.
2. 1980-1990: Companies realized the need for responsible business practices. Incidents like the Exxon Valdez oil spill (1989) highlighted serious environmental concerns.
3. 2004- The United Nations Global Compact in collaboration with major financial institutions, released the Who Cares Wins report, introduced the term ESG. It highlighted the importance of integrating ESG with financial analysis to better long-term outcomes.
4. 2006 – UN backed Principles for Responsible Investment (PRI), launched to promote ESG principles in investment decisions.
5. 2015 – The Paris Agreement & Sustainable Development Goals (SDGs) cemented ESG’s role in global business and investing, pushing companies to address climate risks and social issues.
6. 2020: ESG goes mainstream and ESG became a core part of corporate strategy and investment decisions.

Understanding ESG: A Growing Investment Pillar

Today, ESG investing is not just a trend but a powerful movement influencing how companies operate and how investors allocate capital. The ESG concept is not an ethical choice but a financial imperative that shapes investor confidence, risk management, and long-term profitability. Regulators like SEBI in India, and the SEC in the U.S have mandated ESG disclosures. Rating agencies like MSCI, S&P Global give ESG scores to companies.

The ESG metrics applied in the industries are:

 

 

ESG Investment Statistics

ESG investing prioritizes companies committed to sustainable practices.

• Global ESG Assets: As of the end of 2022, global ESG fund assets reached approximately $2.5 trillion, marking an increase from $2.24 trillion at the end of the third quarter. ​
• Total Assets (India): ESG funds in India reached ₹12,300 crore (approx. $1.65 billion) in 2023, marking a significant jump from ₹3,686 crore in 2020. According to the MSCI India ESG Leaders Index, companies with strong ESG ratings showed a 15% higher return on equity (ROE) from 2018 to 2022 compared to non-ESG-rated companies.
• Green Investment Projections (India): India is projected to witness a five-fold increase in green investments, reaching approximately ₹31 lakh crore (~$400 billion) between 2025 and 2030. This surge is pivotal for achieving the nation’s net-zero goals by 2070.
• Market Expansion (India): The ESG investing market in India generated a revenue of $1,217.9 million in 2024 and is expected to reach $4,109.6 million by 2030, growing at a compound annual growth rate (CAGR) of 23.3% from 2025 to 2030.

Government Initiatives in India supporting ESG:

• Union Budget 2025-26: The Indian government has highlighted environmental strategies through some substantial investments in renewable energy, green infrastructure, and circular economy initiatives.
• Central Bank’s Proposal: The Reserve Bank of India has suggested to create a common pool of bankable climate-focused projects to enhance climate financing, and addressing the challenge of insufficient climate financing due to the lack of projects with a probability of high repayment.​

These developments underscore India’s dedication to integrating ESG principles across various sectors boosting sustainable growth.

ESG in India: Key Trend Drivers

Here’s how each ESG component is driving trends in India:

Environmental: Decarbonization and Renewable Energy

India has been a focal point in the global conversation on climate action. The Indian government has a target to reach net-zero emissions by 2070. This has encouraged businesses to align their operations with environmental goals. Companies investing in clean energy have become particularly attractive to investors. The renewable energy market in India expected to grow at a CAGR of 8.5% from 2023 to 2030, fueled by investments in solar, wind, and hydropower.

Data suggests that around 60% of India’s ESG-focused funds are channeled into sectors like renewable energy, clean technology, and pollution control. This shows investors’ priority towards environmentally conscious firms. This surge is partly due to growing awareness among Indian consumers, who increasingly favor brands that adopt eco-friendly practices.

Social: Prioritizing People and Community Impact

The “Social” aspect of ESG investing push companies to redefine their approach toward employees, consumers, and the broader community. During the pandemic, companies with fair labor practices, support for mental health, and community outreach initiatives garnered positive investor attention. In fact, a study by Edelweiss found that 70% of Indian millennials prefer investing in companies that demonstrate social responsibility, indicating a generational shift toward ethical investment.

A noteworthy example is Tata Consultancy Services (TCS), which launched several initiatives focused on community support and employee well-being during the pandemic. This boosted TCS’s reputation as a socially responsible entity, resulting in a 12% increase in institutional investments by 2022.

Governance: Transparency and Accountability

Governance is a critical factor in ESG investing, especially in a complex regulatory environment like India. Investors emphasize on companies with transparent board structures, ethical decision-making, and robust anti-corruption policies.

Since 2021, SEBI (Securities and Exchange Board of India) has mandated the Business Responsibility and Sustainability Report (BRSR) for top-listed entities to ensure transparency in ESG practices. This has led to an 18% rise in ESG-focused investments in Indian companies in just two years, as investors are now more confident about transparency in corporate practices.

Challenges: ESG Investing

• Greenwashing Concerns: Some companies are accused of overstating their ESG commitments, leading to skepticism among investors and stakeholders.
• Need for Standardization: The lack of universally accepted ESG reporting standards can make it challenging to compare companies’ ESG performance.

Despite these challenges, the momentum behind ESG investing is strong. As regulations become stricter and global pressures intensify, businesses in India will need to adapt swiftly to remain competitive. For investors, this means a broader selection of ESG-compliant companies to choose from, and for companies, a chance to reshape their practices in line with global standards.

Conclusion: ESG as a Competitive Advantage

The post-pandemic era has underscored the importance of sustainability and resilience. In India, where businesses play a critical role in shaping societal and environmental outcomes, ESG investing offers a roadmap for long-term success. For companies, adopting ESG practices isn’t just about aligning with investor demands; it’s about building a sustainable business model that can thrive amid global challenges. And for investors, ESG is no longer a nice-to-have—it’s a must-have, promising returns that go beyond financial gains to contribute to a better future.

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