Dr Mukund Rajan Shares Why Indian Companies will be forced to Adopt Environment, Social and Governance Ideology Hint: Climate change is real

With the increasing focus on issues such as climate change and its impact on the entire planet, has pressured global stakeholders including companies to integrate environment, social and governance to their core process.

In order to support similarly listed entities in the small and mid-cap space, former TATA Executives Dr Mukund Rajan, Govind Sankaranarayanan and Alan Roslin have collaborated with Ajit Dayal-led Quantum Advisors to launch a $ 1 billion fund.

The proposed JV will be chaired by Rajan. In an exclusive conversation with Entrepreneur India, Rajan shared the ideology of the fund and why Indian companies will have to adopt ESG.

The Idea

In the international market especially in the European Union, policymakers are looking to come up with regulations wherein all assets managers will integrate ESG consideration in their investing protocols.

They will also be asked to disclose the ESG performance of the investee companies while creating awareness about ESG criteria in the retail market.

On asking him whether he sees Indian companies adopting the thought process, the chairperson promptly said they will be forced to.

During the sidelines of Jombay's Leading from Behind Summit, Rajan added, "What's driving a lot of this is a huge impact on climate change and I think everybody is nervous because of it happening way faster than we expected. Therefore corporates have to take the responsibility to adopt ESG much faster to tackle these kinds of issues."

With this fund, the promoters are trying to create awareness around the subject and incentivize the companies that integrate it. While a lot of us often assume the impact investing is a synonym to ESG investment, the case is otherwise.

Clearing the air around the subject, Rajan commented "Unlike impact investment, where some of the investment will not necessarily generate a large return, this fund will very much focus on returns for investors. Just like in the other countries, we are aiming to demonstrate ESG companies can deliver better returns for the investors even in India."

The Strategy

As mentioned earlier, $1 billion funds will mainly focus on listed small and mid-cap companies. The promoters will deploy at least $30-50 million to each company and during the tenure of the fund – it aims to touch base with more than three dozen such entities.

Elaborating on why the funds in focused on publicly listed companies, Rajan shares that it is the promoters' long desire to create some change in the corporate environment and public equity space to start with.

Additionally, the thought process will take exit load from the table and create pressure among other companies

"PEs has found difficulty in achieving an exit from unlisted companies. So, that problem gets resolved because you are investing the public market where one can exit anytime without any issues or obstacles," he pointed out while adding, "This will also help us create peer pressure in the larger Indian corporate community - simply because publicly listed companies are putting out quarterly disclosures and make their process transparent to explain what are they trying to do - unlike the PE space, where what you do remains between you and the company."

Additionally, the promoters are looking to develop this JV as a platform to with world-class ESG research. Rajan notes that this first offering from the platform and with time, they would launch a PE fund, distress fund, etc to expand their horizon.

What Next

Presently, the fund is awaiting Securities and Exchange Board of India's (SEBI) nod to operate, which would take another two-three month. Having said that, considering the general election are a few months away, the funds would be deployed post polls.

"It is a brilliant time because we will actually be deploying the capital after the election. So, we will know which government is in power, what policies are in priority and hence, I think the timing is just right," the senior executive said.