It was only last month
when I was approached by a magazine for financial planners to write an article
for them. One of the subjects that I proposed was writing a series of articles
on Environment, Social and Governance (ESG) issues in financial investment decision
making. They politely refused citing that their readers will not be interested
in something like this as it doesn't concern their clients directly. While I
completely respect their decision, but I personally feel it may be the right
time that we start evaluating ESG implications of our financial decisions.
The recent Public
Interest Litigation (PIL) filed in the Bombay High Court brings out the ESG
debate into mainstream. The PIL against the Union government, Insurance
Regulatory and Development Authority (IRDA) and five public sector companies,
Life Insurance Corporation (LIC), General Insurance Corporation (GIC), New
India Assurance, National Insurance Company and Specified Undertaking of Unit
Trust of India (SUUTI) for their investments in tobacco companies like Indian
Tobacco Company (ITC) and VST Industries. The PIL states that companies like
LIC which have sold life cover to millions of Indians should not be party to
business of promoting tobacco consumption. It further states that the
government is violating in spirit and intent the World Health Organizations
(WHO) Framework Convention on Tobacco control.
As of 13th April,
2017, the total combined investments of these five companies in ITC alone
exceeded INR 1 trillion. In fact, in February this year, as part of its
disinvestment program, government of India asked LIC to buy two per cent of
SUUTIs investments in ITC. The divestment helped government raise a healthy INR
6700 crore.
Back in 2013, a
section of shareholders of Reliance Industries (RIL) pressurized it to stop
selling meat and seafood in its Reliance Retail super markets. Though a
lucrative, high margin business, the management of RIL decided to give into the
demands of these shareholders as it went against their religious beliefs. It
was promising to see a company giving prominence to its shareholders’ beliefs
over mere profit making.
Globally, ESG compliance
has gained prominence in financial decision making and pension / sovereign
wealth funds, various development banks like World Bank have completely
withdrawn or back tracked on their investment decisions owing to shortcomings
in ESG compliance. Since the quantum of investments is huge, these entities can
influence / force the company to comply with global best practices. To quote a
few examples, Norway Pension Fund Global, the largest sovereign wealth fund in
the world, withdrew investments from palm oil companies in Malaysia and
Indonesia which were perceived to be harming the ecologically sensitive rain
forests in these countries. Similarly, World Bank refused financial support to
projects in Northern Africa due to expected damage to the environment because
of these projects.
While we can debate
the Moral vs Legal issues in these cases, but one thing is sure, if the Bombay
High Court accepts the petition, then it will indeed be a watershed moment for
existing and future investments in the country. It will have far reaching
impact on domestic and foreign institutional investments in the country. It may
push the retail investors in financial markets to own up to the implications of
their decisions.
This one is of the most informative article on the ESG its simple and can be easily understood the article has just touch the tip of the ice berg would love to see extension of this with more examples
ReplyDeleteSimple, well written n informative article cutting across finance, social n legal domains... well conceptualised!
ReplyDeleteI did not know much about ESG...shall henceforth follow this blog to keep abreast of times!!!
Very crisply stated the relavence and status of ESG parameters. Multilaterals upfront include Such clauses at the time if signing a funding contract and monitor compliance. In case of ITC however , it would be interesting to see if LIC's money has gone into tobacco processing or in non-tobacco businesses of ITC. Additional info of it would be useful for readers.
ReplyDeleteGood observation. Would personally be keen to know which part of ITCs business has LIC invested in. But would be difficult to get this information, unless disclosed by either party. But now Bombay HC has accepted the appeal and hearing begins from Thursday, so we can look forward to some information.
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ReplyDeleteYou see, when it comes to such economic and related informative articles, writers tend to play with jargons and enjoy freedom in writing on and on, keeping aside the mainstream context, which makes it a bit difficult to grasp for a newbie or someone who doesn't catch up with such things.
ReplyDeleteBut in your case, you have kept it short and crisp, informative and at point. Serves the purpose totally!
It's a great article. Without any doubt. Great going. If at all, be inspired to keep writing such.
Thanks once again for sharing.
Very informative article . Great work !!
ReplyDeleteArticle Worth Reading !!!
ReplyDeleteGlobally many institutions are giving importance to ESG as a concept and once it is brought forward into the light here in India it will be of a great help for investors.
Article is in the money when targeting the motive is concerned.
Great Work !!
Yes when every decision making boils down at the end to profit making, there should be a line drawn beyond which such hypocritical steps must be raised every time and questioned. Great attempt to raise awareness in that front.
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