Welcome to the full Episode 11 of Sustainability Karma, India’s first and only talk show on sustainability on All India Radio.

In this episode of Sustainability Karma, Dr Mukund Rajan, Chairperson, ECube Investment Advisors, shares his insights about the evolving landscape of ESG in India, driven by regulatory changes, investor interest, and societal demands. He emphasises the need for supportive policies and financial mechanisms to ensure that ESG adoption continues to grow and contribute to sustainable development.

Recapping the developments in the Environmental, Social, and Governance (ESG) arena since the publication of his book, Outlast: How ESG Can Benefit Your Business, he highlights three major areas that would be important to address if the book were to be updated today.

Firstly, Dr Rajan points to significant new regulations from the Securities and Exchange Board of India (SEBI) regarding business responsibility and sustainability reporting framework (BRSR). He underscores how these regulatory changes are accelerating corporate behaviour changes.

Secondly, he mentions the rise of anti-ESG sentiment in some parts of the world, particularly North America. He believes it’s important to reflect on the drivers of this backlash and its implications for the broader ESG agenda, which was initially viewed very positively. At the same time, he is confident that it won’t have an adverse impact on ESG in India.

Thirdly, Dr Rajan talks about the increasing need for sustainable finance. With many companies eager to adopt ESG practices, there is a growing demand for sustainable banking and finance to support these initiatives. He notes that the world of sustainable finance is evolving quickly to meet these needs.

Saying that ESG awareness and adoption are increasing, he admits that many Indian companies still view it as a compliance requirement rather than a business strategy. He cites data showing improvements in the ESG ratings of Indian companies, indicating a more serious approach among larger and better-organised firms. However, he acknowledges that many companies still adopt a “tick-box” approach, driven more by regulatory compliance than by recognising the business value of ESG.

Globally, ESG is primarily driven by investors. In India, however, it is still early days for investor-driven ESG initiatives. The total assets under management of Indian ESG mutual funds remain a small fraction of the overall market, he says. Regulatory pressure and civil society demands, such as those for clean air in the national capital region, are currently the primary drivers of ESG in India.

Regarding the anti-ESG sentiment seen in the US, Dr Rajan believes that India is less likely to face such controversy. He argues that India’s unique challenges, such as climate change, poor air quality, and social inclusion issues, necessitate urgent ESG action. These challenges align with India’s cultural and developmental context, making the ESG agenda less controversial compared to richer countries.

Dr Rajan emphasises the role of the Indian government in accelerating ESG adoption. He believes that the upcoming budget should support the commitments India has made on the global stage to address climate change and global warming. This includes funding for non-fossil fuel energy capacity and other sustainability initiatives. He also suggests policy measures such as integrating green financing into priority sector lending, developing a green taxonomy, and encouraging green procurement by the government.

Finally, Dr Rajan underscores the importance of supporting small and medium enterprises (SMEs) in their ESG efforts. SMEs play a significant role in job creation and value chains in India. He suggests that government support should be directed towards entities like the Small Industries Development Bank of India (SIDBI) to help SMEs align with the ESG agenda