Three former Tata Group executives in partnership with Quantum Advisors will launch a $1 billion Environment, Social and Governance (ESG) Fund which will invest in Indian companies that value the environment, society and corporate governance to the core.
The proposed equal joint venture(JV) would mobilise funds from long-term foreign investors such as pension funds, sovereign wealth funds and family offices of high networth individuals (HNIs) who value ESG.
Operate after SEBI nod
The company would be registered soon and operate after the Securities and Exchange Board of India gives its approval which may take about two to three months.
While Quantum founder Ajit Dayal would lead the investment team, Mukund Govind Rajan, formerly brand custodian and chief ethics officer, the Tata Group, would be the chairman of the JV.
Former Tata Capital chief operating officer Govind Sankaranarayanan and former Tata Sons director Alan Rosling would join him in the initiative.
The others include Harish H.V., who had developed and built the financial and advisory practice of Grant Thornton and Shankar Venkateswaran who was the chief of sustainability at Tata Group.
“There is pressing need for such a fund in India as there are concerns on standards of corporate governance in the country and Indian companies will need to play a central role to help achieve global climate change targets.
“We will take a private equity approach while investing in companies and these companies will be role models among others on ESG values,” Dr. Rajan told The Hindu .
“The focus on ESG offers a new and much needed mantra of sustainable investing and better risk weighted returns to investors,” he added.
“Aligning this with an active engagement style will help to push the larger agenda of improving quality of life of the communities served by companies we invest in, and a better environment for our common future,” he said.
The fund will aim to drive higher ESG performance in Indian corporates and it will adopt an engaged, private equity approach to public markets investing, with a focus on working with companies willing to recognize the long-term advantages of actively adopting ESG standards of excellence.
It is expected that many of the investee companies will be classified as ‘mid-caps’ though large-cap companies may also benefit for such as approach.
It will take about a year to mobile the targeted $1 billion. But the first close of the fund is expected in the next two quarters. “The objective is to start investing from the second half of this year after the general elections,” Dr. Rajan said. He said he will be fully involved in this project to ensure it achieves the desired objectives.
Investing on the basis of ESG criteria is rapidly growing around international markets with over $20 trillion in assets under management. New research has shown that ESG strategies adopted by funds are yielding higher returns and higher profitability and higher valuation for both funds and portfolio companies. And this trend is set to catch up India as well.
“In the 23 years that Subbu and I have built the investment processes at Quantum Advisors and Quantum Mutual Funds, we know that investing in companies with good social and governance scores has helped our investors,” said Ajit Dayal who is an industry veteran.
“We believe that with the highly experienced team brought together by Mukund, Govind and Alan who will engage with the investee companies at the board and execution levels, we can identify promoters of companies who are keen to know how to improve their ESG practices thereby giving them, and the investors in the new fund, the dual benefit of a truly sustainable business and allowing the market to reward them handsomely for these efforts,” Mr. Dayal said.
This initiative is aimed at encouraging Indian companies to do more to address the issues of sustainability and governance which if left unaddressed, have the potential to undermine public faith in free markets.
The vision of the fund was developed by the three veterans of the Tata Group who were intimately involved in its growth over the past quarter century. Now they want to replicate this success in many more Indian corporates.
