Hello, everyone. Welcome to Morningstar. I'm Harish Toshniwal, Product Manager for Morningstar Indexes. Today we have with us Sivananth Ramachandran, Manager, New Product Development for Morningstar Indexes, to talk about India Sustainability Index.
Welcome to this edition, Siva.
Sivananth Ramachandran: Thank you for having me.
Toshniwal: So, let's start with the very fundamental question. Does environmental, social, governance, or what is called as ESG-based investing, really relevant in Indian context?
Ramachandran: Well, ESG, or sustainability, as it's commonly called, it's a big trend globally. Now, sample these facts. Assets that are tied to a sustainable mandate totaled more than $21 trillion, representing a growth of 61% between 2012 and 2014. Even in Asia, the growth was a fairly impressive 32%. In India, we are seeing increasing interest in sustainability due to a host of factors.
Toshniwal: So, you talked about factors. Can you talk a little more about the factors that drive sustainability in India?
Ramachandran: Sure. We can categorize these factors into push and pull factors. When it comes to push factors, things like regulatory changes such as mandatory business requirements for the top 500 companies by market capitalization drive investor interest. The pull factors include things such as increasing foreign investor interest. Now, foreign institutional investors, they are increasingly moving their portfolios towards companies which have sustainable businesses. If Indian companies don't evaluate their ESG risks fairly well, they risk a sell-off. Norges Bank recently sold investments worth about 700 crores across seven Indian companies which had exposure to coal in April this year.
Toshniwal: So, how is Morningstar helping investors in navigating the sustainability space?
Ramachandran: At Morningstar, we help investors across the investment spectrum when it comes to ESG, be it large asset managers or individual investors. So far in 2016, our efforts have been to help investors assess their current investments. In early 2016, we launched the Morningstar Sustainability Ratings for funds. The rating measures how the companies in the fund portfolio manage their ESG risks as well as opportunities. We assign a 1 to 5 globe scale for each fund relative to its fund category. Currently, we are also focused on our ESG benchmark rollout. Now, there was a need for investors for ESG building blocks so that investors can construct their strategic asset allocation efficiently. The launch of Morningstar Sustainability Index series was in response to that need.
Toshniwal: Thanks a lot for your time today, Siva.
Ramachandran: Thank you for having me.
Toshniwal: For Morningstar, I'm Harish Toshniwal. Thanks for watching.