ESG investing factors and constituents - A tool for socially responsible investment in a rising populism environment

Abstract

Social Investment is at a nascent stage in India. Investors play a dominant role in the development o.f the economy by mobilizing the funds and realize the importance of their role in financial markets to influence sustainable growth.The rise of political populism has highlighted the dangers that arise when the welfare gains from technological change and globalisation are not widely shared and social mobility is impaired (Rodrik 2017).  The trend among rising populism is indulging  investors to include non - financial criteria by looking for investment opportunities that are in line with ethical and social values. The enterprises to meet accelerating  climate change require direct  consequences of sustainable policies reporting  at the cost of the environment and long-term sustainability. The corporate sustainability policy and its reporting are driven by technology, transparency , investor interest in rising populism  for disclosing ESG and its constituents for making a choice for investors to be socially responsible.

Socially responsible investment is an investment avenue which gives financial return and brings positive change in the environment with long-term sustainability. India’s shift towards achieving environmental sustainability provides a push for incorporating ESG (Environment, Social and Governance) factors by enterprises. ESG investing factors and constituents are considered to be a tool for socially responsible investment which holds a face in rising populism and changing environment. Responsible Investors give importance to the factors of environmental, social and governance (ESG) as sustainability indicators and hunt to invest in firms that disclose their accomplishment towards ESG factors. The problem of the study is that the investors find it challenging to identify ESG factors and constituents to be considered for social investment in India. 

The study aims to develop a framework of  ESG factors and constituents determined by Global Reporting Initiative Standards , other reporting standards and systematic review of literature. The study performs thematic analysis on  companies forming part  of S&P BSE 500  index for the period of 5 years to identify socially responsible companies. The article provides a matrix of ESG factors and constituents for investors to incorporate social values for investments without foregoing return. 

The study benefits the investors to select companies which are socially responsible and gives an insight into the factors to be considered for selecting companies by the investors which fall under socially responsible investment. The study shedlights on the identification of ESG constituents for Indian companies to be a socially responsible investment but further studies are required to do empirical analysis on  the performance of identified socially responsible investment companies and can be extended to international context for analysing ESG companies.