Avendus Capital Public Markets Alternate Strategies has launched India’s first ESG (Environment, Social and Governance) Fund — AvendusIndia ESG Fund.
This alternate asset management arm of Avendus Capital will aim to scale up this ESG Fund to — both onshore and offshore — a $1-billion fund, Abhay Laijawala, Managing Director and Fund Manager, said.
“The whole objective is to give investors a solution to invest sustainably and responsibly. This fund was announced in August 2018 and we have started making investments from February 1,” he said.
The open-ended, long only AvendusIndia ESG Fund is a Category III Alternate Investment Fund (AIF) is looking to create a portfolio of about 20 stocks from the Nifty 100.
“We are going to follow a bottom-up stock strategy. Based on ESG ranking provided by IiAS, we will pick up the top 50 ESG ranked companies.
“Then we will do fundamental analysis on these 50 companies and whittle it to 15-25. Our approach is not sector-driven and not top-down,” Laijawala said.
Ranking framework
Avendus has tied up with Institutional Investor Advisory Services (IiAS), an independent advisory firm, which has put in place a ranking framework covering ESG principles. Laijawala said that ESG Investing is an effective way to mitigate tail risks and is gaining acceptance across investors.
“Today, 26 per cent of total assets, globally, are managed under Sustainable Responsible Investing — $22.9 trillion versus $13.6 trillion in 2012. The data points justify the fact that investors, globally, are increasingly seeking to invest in companies that are compliant with sustainable principle,” he said.
Avendus expects this trend to be replicated in India and wants to be the most respected vehicle for taking leadership on ESG integration in the investment world in India, Laijawala said.
Gaping hole in ESG segment
Although India has over $100 billion in equity assets, it is the only country in emerging Asia where there is no money managed under ESG or responsible investment category.
“We saw a gaping hole here and so decided to launch this ESG Fund,” he said.
Asked if all three parameters — environment, social and governance, will get equal weightage in the framework designed by IiAS, Amit Tandon, Founder and Managing Director of IiAS said there will be different weightages for E, S and G.
“Governance is going to get a higher weightage to begin with. It has taken nearly eight years (since 2011) in the governance space in India for companies to realise a premium for their good practices. The journey which has taken us eight years for G will be far more compressed for S and E,” Tandon said.
Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies said 70 per cent of the fund mop-up for AvendusIndia ESG Fund will happen offshore, with the rest 30 per cent from domestic markets. “We have already from February 1 started investing in 15-25 Indian companies ranked high on ESG scores and after applying our fundamental analysis,” Holland said.