Sustainability investments could make up 40% of India’s assets under management in the next four years, reveals survey

• Sustainable investments by Indian firms are projected to grow to $125 billion by 2026, as per a report.
• The Benori report estimates that sustainable investments would make up 40% of AUM by Indian PE and VC firms.
• E-mobility has caught the attention of investors the most as the investment in this sector almost doubled during the period of 2019-2022.

Investment in sustainability is the need of the hour as climate change, ecological collapse, and social inequality deepen every day. Following a trend in the right direction, Indian firms are poised to invest more in things that are good for the planet and the people.

In fact, this investment is projected to grow to $125 billion by 2026, at a 5-year compound annual growth rate (CAGR) of 46%, as per a report by Benori Knowledge.

Such investments are already a hit in the west, with sustainable investments accounting for one-third of assets under management (AUM) in the United States and 36% globally. However, the Indian sustainable investment space only makes up 10-15% of AUM by private equity (PE) and venture capital (VC) firms.

But the good news is that the growth in the space is gaining momentum in India. The report suggests further that the estimated sustainable investments would make up 40% of AUM by Indian PE and VC firms.

The possible reasons behind this encouraging trend could be the growing consumer demand for socially responsible brand behaviour, government policies and the massive growth of cleantech and green initiatives in recent years.

E-mobility sector attracts most sustainable investments

Renewable energy, agri-tech, e-mobility and waste management — are some other sectors attracting the most sustainable investments, as per the report.

Among all, e-mobility has caught the attention of investors the most as the investment in this sector almost doubled from 2019 to 2022. “Within the next five years alone, the electric vehicle market in India is projected to attract investments worth ₹94,000 crores,” the report says.

Companies across all sectors are now moving towards strengthening their sustainability parameters. The consideration for sustainable practices within businesses when making investments is also rising.

However, on the other side, stakeholders have become more selective about investments. They prefer investing in companies with greater sustainability interests, such as ESG considerations, which has a long-lasting impact on their credibility.

“Growing sustainable demands can only be mitigated by universal acceptance. Slowly but steadily, the investor community will realise that by harnessing sustainable opportunities, their firms will get long-term value and endurance. To strengthen ESG practices and reduce the reluctance towards sustainable investing in the country, there should be significant regulatory push and guidance asking for disclosures that must be supplied in a timely manner,” said Ashish Gupta, co-founder and CEO of Benori.

The report also highlights a variety of issues currently plaguing India's sustainable investments. Lack of quality data, measurement criteria, a traditional mindset, a limited record of sustainable funds, and a lack of awareness are some hurdles that must be overcome. The limited availability and growth of the talent pool with knowledge in the areas of ESG/sustainability also remain a concern.

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