As climate concerns grow, people are making inquiries about how meaningful or impactful are investments in green bonds, ESG funds, etc., to society and whether they should continue investing in them.
According to Vinay Mantha, co-founder of PYSE, a green asset investing app focused on retail investors, people should look at the big picture and invest in assets that look beyond making profits. He said that besides profit, investments that positively impact people and the planet should be considered.
“A good investment product is the one that looks at the triple bottom line: People, profit and planet. An investment that looks at this holistically is one that will come out successful,” he added.
Kartik Parekh, a Sebi-registered investment advisor and co-founder of fintech platform Gochanakya, said that when small investors come together and invest in ESG funds, green bonds, and other impactful investing instruments, “they become big enough to impact the planet and environment in a positive way. Hence, they can indirectly facilitate a company to take ESG complaint operations or other good decisions for the planet like reducing their carbon footprint, and waste.”
Ankit Gupta, founder, BondsIndia.com, a bond investing platform, said that investors today apart from the predetermined returns consider corporate social responsibility (CSR) and the non-financial factors Environmental, Social, and Governance (ESG) as a part of their analysis process to identify material risks and growth opportunities in the impact investments.
"Hence, from a responsible investor point of view investing in various impact investing options like green bonds, ESG instruments, and other investment avenues does make sense. Impact investment helps an investor avail the advantage of dual benefits, first the investor earns predetermined interest income; second, the investor directly contributes towards social responsibility. Also, the possibility of government coming with tax benefits for investors investing in green bonds cannot be ruled out," he added.
Mantha said that most Indians generally want to invest their money in instruments that also serve the social cause but they did not have any avenue to do so until the past few years. He explained that ESG is a “more holistic view of impact investing that covers the environmental and corporate governance aspects of investment.” Impact investing tries to capture the broader connection between priorities and capital use. Thus, impact investing tries to quantify the positive impact of an investment. "Impact investing is a solution that fundamentally impacts people, profits and the planet," added Mantha.
Arvind Agarwal, co-founder and CEO of C4D Partners, an impact investing fund-management company, said that every investment can either have a “positive or negative impact”. So, it is important to be conscious of the impact of investments on society and the planet.
He added that investors should responsibly invest so that “the limited resources that we have are judiciously consumed.” He also cautioned investors that impact investments are no different than venture capital investments; thus “making them high-risk assets.” Hence, a deeper understanding of the product is necessary before committing to it.
Agarwal said that impact investing instruments should be added in the portfolio of high-net-worth individuals and institutional investors who “have a high-risk appetite” and understand the risks.
Mantha further added that people should consider green investment options as a “lifestyle choice, one that contributes to the renewal of our environment through financing green and clean projects.” Responsible, impact-focused investments would generate both monetary benefits and a positive impact on the planet.
Indian Small Retail Investors’ Impact Investing Options:
ESG investing forms a small part of impact investing and retail investors can participate in it.
In India, exposure to impact investing for a retail investor is either by direct means (financing a positive impact project) or by indirect means (green bonds and ESG funds).
Green Bonds: Parekh said that the Indian government is promoting financing of environmentally good projects by way of green bonds. Retail investors, who deeply care about the environment, could subscribe to these bonds and help build a sustainable future for the country and the planet.
He said that “The minimum ticket size for these bonds is Rs 10 lakhs and generally they are issued for 2 to 20 years tenure, these bonds finance only environmentally positive impact projects.”
Parekh noted that investing directly in green projects locally also carries certain risks. Hence, these green bonds could reduce the risks by pooling the resources from investors around the country and investing them in green projects like renewable energy.
"The green bonds issuance in 2021 was exceptionally high in India. In the span of 11 months, India issued 6.11 billion dollars of green bonds in the year 2021 which is 1.3% of global green bond share compared to 0.4% in 2020," added Gupta.
ESG Funds: There are various ESG mutual funds which retail investors can buy. Parekh added that retail investors can indirectly influence companies to act for preservation of the environment and other positive, impactful activities by investing in ESG mutual funds. “They will get the satisfaction that they did their part in taking care of the planet they live in by investing in ESG companies.”
