BEYOND THE BLIP

ESG HAS BEEN UNDER SCRUTINY GLOBALLY AMID ALLEGATIONS OF GREENWASHING AND RECORD REDEMPTIONS FROM ESG FUNDS. BUT THAT MAY JUST BE ONE SIDE OF THE STORY, SINCE SUSTAINABLE PRACTICES HAVE BECOME CORE COMPONENTS OF COMPANIES' STRATEGIES

- RICHA SHARMA

ON MARCH 26, 2024, BlackRock CEO Larry Fink caused quite a stir. His annual chairman’s letter to investors was in the news for what it did not have. Conspicuous by its absence was the mention of the term ESG (environment, social, and governance).

But for those who had followed the $10-trillion asset manager, perhaps this came as no surprise. In June 2023, Fink had said, “I’m not going to use the word ESG because it’s been misused by the far left and the far right.”

ESG has been the subject of an intense debate, with some terming it ‘woke capitalism’, especially in the US. As a result, investors pulled out $13 billion from sustainable funds in the US in 2023. Asian markets, too, saw mild outflows in 2023. One of the biggest exceptions is Europe, which continues to lead in sustainable investment, attracting $10.9 billion in sustainable funds in the January-March quarter of 2024.

India was a latecomer to the ESG party, but there has been a significant increase in investments in such funds over the past seven years. The assets under management (AUM) of active ESG mutual funds grew significantly from under ₹3,000 crore in December 2019, when there were just two schemes, to ₹12,000 crore in December 2021, when there were eight schemes. But since then, the AUM has broadly remained flat—in the ₹10,000–11,000 crore range—and there have been no new fund offers (NFOs).

The question now is whether Indian investors, who haven’t been very enthusiastic about sustainable investments, will be influenced by the global volatility in the ESG space.