In the world of ESG considerations, particularly in developing markets like India, the significance of governance cannot be overstated. This emphasis stems from the understanding that poor governance can lead to capital destruction, and many managers believe that companies lacking strong governance focus are unlikely to prioritize environmental (‘E’) and social (‘S’) aspects.

Global ESG Focus: Recognising Country-Specific Relevance in Emerging Markets

ESG considerations in emerging markets, including India, play a crucial role in shaping sustainable practices. While the global focus on environmental, social, and governance (ESG) factors has gained momentum, it is essential to understand that ESG considerations in emerging markets differ from country to country. Our recent report titled “Moving the Needle – Stewardship in India” unveils the nuanced nature of ESG considerations in emerging markets, with governance emerging as the cornerstone of ESG priorities, especially in India’s corporate landscape.

Governance: The Foundation of ESG Considerations in Emerging Markets

Extensive research reveals that governance is pivotal in shaping ESG priorities from an investor’s perspective worldwide. In the context of emerging markets, such as India, ESG considerations revolve around effective governance practices. The emphasis lies on understanding a company’s promoter and skillfully managing “bad actors” who may harm minority shareholders. ESG considerations in emerging markets like India are intertwined with governance principles.

Engagement Focus: Nurturing Governance for ESG in Emerging Markets

Among the various engagement examples we received, governance-related issues took centre stage, closely followed by environmental concerns. In emerging markets, including India, ESG considerations involve nurturing governance practices to drive positive transformations. The engagement efforts primarily revolved around management remuneration, board independence and diversity, and related transactions. ESG considerations in emerging markets place significant importance on fostering effective governance practices.

Looking Ahead: Overcoming Structural Challenges in ESG Considerations for Emerging Markets

Managers anticipate that governance-related challenges will persist in the coming years, mainly due to the prevalence of promoter-led companies in emerging markets. Engaging with these companies as minority shareholders poses a limited impact. As the industry evolves, adopting effective strategies to address these challenges and drive positive change becomes increasingly important. ESG considerations in emerging markets necessitate proactive measures to overcome structural challenges associated with governance practices.

ESG considerations in emerging markets, such as India, highlight the pivotal role of governance (‘G’) as the cornerstone of sustainable practices. Investors and market participants recognize the need to navigate the complexities of ESG considerations in emerging markets, adapt engagement strategies, and promote sustainable practices to drive positive transformations. ESG considerations in emerging markets require a deep understanding of the unique dynamics of a company’s promoter and effective management of “detrimental figures” to achieve ESG goals.

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About ‘Moving the Needle’
Following the success of our reports on stewardship in China and South Africa, this latest edition, “Moving the Needle – Stewardship in India” focuses on stewardship practices among asset managers in India and their impact on the country’s capital markets. The report delves into the attitudes and practices providing valuable insights into asset managers’ commitment to responsible investing and incorporating environmental, social, and governance (ESG) factors into their investment decision making. It examines the progress and challenges faced in India’s stewardship landscape, presenting key findings and recommendations. The report is an essential resource for investors, asset managers, and industry professionals seeking to understand and navigate India’s evolving stewardship practices.