Climate change awareness has led global investment firms to prioritise sustainable investments not only for long-term financial returns, but also for positive social impacts. Fixed investment accounts for a third of assets under management (AUM) in the US and 36 percent of global AUM, the Indian sustainable investment space only makes up 10-15 percent of AUM, by private equity (PE) and venture capital (VC) firms currently, a report revealed.
According to a report by Benori Knowledge, a new provider of custom research and analytics solutions, sustainable investments by Indian private equity and venture capital firms are expected to reach $125 billion by 2026, with a CAGR of 46 percent in five years. Until then, Indian private equity and venture capital firms have managed around 40 percent of fixed investment assets under management.
The reasons for encouraging sustainable investment companies in the country are consumer demand for socially responsible brand behaviour, government policy, and the large-scale development of green and clean technology companies.
According to Benori, the sectors that attract the most sustainable investments are renewable energy, agricultural technology, electric mobility and waste management. Electric mobility is of particular interest to PEs and VCs, with investments in this sector set to double between 2019 and 2022. In the next five years alone, the Indian electric car market is expected to attract investment of ₹94,000 crore, Benori’s report says.
According to the Benori report, there is a growing consideration of sustainable practices among companies when it comes to investing. Stakeholders are increasingly cautious about the outcome of their investments and prefer to invest in companies with long-term interests, such as the Environmental, Social and Governance (ESG) concept, which has a long-lasting impact on their credibility.
Currently, several issues plague India’s sustainable investments, such as lack of quality data, metrics, traditional mindset, limited track record in sustainable financing, and lack of awareness. The ESG or sustainability-savvy talent pool is limited and not growing at the same rate as the demand for long-term investment support.