The intersection of ESG (Environmental, Social, and Governance) and impact investing isn’t just for the morally motivated anymore. In a global economy dependent on the sustainability and availability of natural and human capital, doing good makes financial sense.
Today’s most visionary and responsible business, financial, and public sector leaders understand that and have the data to prove it.
The ESG success story
Harvard Business Review and several other studies attest that sound performance on ESG-related measures translates into better financial returns and accountability. This finding was echoed by the GIIN’s (Global Impact Investing Network) 2017 Annual Impact Investor Survey. Based on the analysis of more than 200 of the world’s leading impact investing firms, the survey found that the majority of respondents achieved market-rate returns, with 91% claiming their returns met or exceeded their professional expectations.
Today, where traditional markets have failed, many impact investment managers are succeeding by creatively using philanthropic and impact investment tools and taking big bets on enterprises that generate strong social and financial returns in the long term. Indeed, at a time of market upheaval and the worst April for equities in decades, ESG-labelled funds are drowning in cash.
Global ESG assets are now on track to exceed $53 trillion by 2025, showing particularly strong performance in emerging markets.
So, what gives?
It’s pretty simple, actually! As socio-environmental issues like climate change, poverty, human rights, and gender and income inequality become more central to mainstream business decisions, more and more global business leaders and investors are realising that profitability and longevity are not just about the shareholders anymore.
Progressive business leaders understand that their success is not just driven by one metric: the highest and quickest form of financial returns at the cost of everything else. Investing in both human and natural capital increases returns and reduces risks such as those associated with the escalating climate crisis.
Need for ESG investments in India
This is especially relevant in a market like India, where the economic impacts of global warming are playing out in real-time. An unprecedented and deadly heatwave — made 30 times more likely by the climate crisis — led to a substantial reduction in the country’s wheat crop yields. In turn, this caused the government to reverse an earlier plan to supplement the global wheat supply that has been impacted by the war in Ukraine.
The soaring temperatures have also led to power and water supply shortages and forced millions of people to limit their activity to early morning and evening, reducing India’s overall economic productivity and output. Make no mistake — a regional heat wave across the world’s second-largest wheat producer has global implications in today’s world.
That is exactly why investments in everything sustainable — from regenerative agriculture to clean energy to low-carbon and climate-resilient infrastructure, higher quality health services and education for all — are the need of the hour.
Sustainable investment opportunities in India
Take water, for example. A clean water supply is the backbone of a healthy economy, but it is woefully under-prioritised globally. India is the world’s fastest-growing economy yet 50% of the population lacks access to safely managed drinking water, resulting in an estimated economic burden of approximately USD $600 million a year.
This represents a tremendous opportunity for investments in water utilities and environmentally-driven companies that clean, purify, or distribute water to all. As part of the founding team at WaterEquity, I saw first-hand how investments in water in emerging markets helped entire families and communities create wealth and improve health.
This potential cuts across all ESG-driven sectors, including renewable energy and gender equity. Wind and solar energy generated 10% of the world’s electricity last year alone and have very strong potential for scale. India, which announced its aim to reach net-zero emissions by 2070, is particularly well-placed to become a global leader in renewable batteries and green hydrogen. According to the International Energy Agency, these and other low-carbon technologies could create a market worth up to US$80 billion in India by 2030.
Investing in gender equality
There is also a substantial opportunity for growth and financial gains in India by improving women’s access to markets and financial assets and investing in women-led businesses. Current estimates place India’s female participation rate in the formal labour force at only 24% — among the lowest in emerging markets. In the C-Suite, women account for only 4.7% of CEOs in India, while less than 1% of Indian founders who receive funding in Series A and beyond are women.
Yet, McKinsey Global Institute (MGI) found that achieving gender equality in India would have a larger economic impact than in any other region in the world — US$700 billion of added GDP in 2025. According to another MGI report, the Indian economy could grow by an additional 60% by 2025, adding $2.9 trillion, if women were represented in the formal economy at the same rate as men.
Now, I’m not saying ESG is going to magically solve all our problems. To the ESG critics, let me be clear — it’s true that ESG ratings today are suboptimal and disclosure requests are a work in progress. And when it comes to ESG and sustainability overall, too many of us are still not speaking the same language (which the development of the International Sustainability Standards Board may help us with).
ESG in its fullest form has not yet been done, and its intersection with impact investing is very promising. This is where we begin to shift from passive, negative screening and divestment to proactive investments that generate both social impact and financial returns.
The intersection of ESG and impact investing are the greatest tools we have for leveraging the power of capital markets in ways that reflect the type of world in which we want to live. So why are we not implementing these business and investment practices across the board? Why are we still defending business as usual when it has repeatedly failed the planet and left so many people behind?
The cost of silence and inaction is far too great to settle for the status quo!
About Lebec Consulting
Lebec Consulting is a woman-owned and women-led firm that advises corporations, foundations, high-net-worth individuals, financial institutions and entrepreneurs on how to achieve their greatest social impact through philanthropy, impact investing and ESG investing. The consulting firm has a clear understanding of how these financial tools can be leveraged for deep impact and societal change, helping their Clients align more capital with the right people, organizations and social innovators who are moving the needle on the world’s most pressing issues.