Ethical investing concept yet to catch up

Globally, socially responsible investing – which focuses on making money, ethics in tow – is catching on. This can cover a whole range of ethical options, from investing in businesses which cause the least environmental damage to those that safeguard human rights, or promote corporate governance and shareholder advocacy.

In India, however, options available to ethically-minded stock market investors are few, and even the ones that exist are yet to gain widespread acceptance.

For the environmentally-conscious, the BSE has two relevant indices — the S&P BSE Greenex and the S&P BSE Carbonex.

The Greenex comprises of the top 25 companies in the BSE 100 index with energy-efficient practices, measuring, most importantly, the company’s emissions of greenhouse gases, but also their market capitalisation and liquidity. And to ensure that investors get a certain amount of exposure to all key sectors, stocks in the index are picked based on their performance within their specific sectors.

As a result, the index includes Bajaj Auto, ITC, Sun Pharma, Infosys, Tata Motors and Kotak Mahindra Bank. The S&P BSE Carbonex, launched in November 2012, readjusts the whole of the BSE 100 index based on how well they deal with risks arising from climate change.

A slightly more well-known ethical investing avenue is shariah-compliant investing, where investment options are set through filters based on Islamic law. For starters, all financial companies that earn or pay interest (banks, NBFCs) are automatically excluded while other companies have limits on how much debt they can take on or interest they can earn or pay. Also excluded are businesses related to advertising and media, alcohol, tobacco, gambling, among others.

Take, for example, Tata Asset Management Ltd, which manages an ethical fund with assets of just under ₹300 crore. According to Pradeep Gokhale, Senior Fund Manager, the fund was launched in 2001 for investors in West Asia interested in the Indian equity market, but now non-Muslim investors, members of the Jain community particularly, are also showing interest.

The fund outperformed its benchmark, the CNX 500 Shariah, over one-, three- and five-years. However, its performance against the CNX 500 is more erratic, beating it by eight percentage points over the last one year but only gaining 26 per cent in the three-year period against the CNX 500’s 62.4 per cent.

For animal lovers, there is the Beauty Without Cruelty investment guide helps investors identify companies whose businesses do not cause to animals and insects. This guide excludes agrochemicals, animal husbandry, leather products and restaurants that serve meat.

Vidya Bala, Head of Research, Fundsindia.com, says, “In the Indian context, the universe of clean energy companies, particularly in the listed space, is not big enough to make a meaningful portfolio. While this might be a shortcoming on the part of the law to enforce stricter sustainable practices, we must take into account that India is a growing economy and if you strangle companies with regulation, there’s a risk of a further slowdown.”

Besides, she adds, “The challenge we face is in moving the majority of investors from simple bank deposits to the capital markets. We don’t want to give them a 50 per cent fall in their portfolio and drive them back to poor-yielding investments.”

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