KKR-backed firm eyes $1 billion fund to tap India ESG investors

Avendus Capital Ltd has started accepting money for one of India’s first funds to base investment decisions on environment

, social and governance (ESG) parameters as investor concerns about governance at Indian companies surge.

“Traditionally, university endowments and pension funds tend to participate in ESG. But we are now seeing a lot of appetite also from millennial, high net-worth investors and family offices,” Abhay Laijawala, managing director at Avendus Capital Public Markets Alternate Strategies LLP, said in an interview at his office in Mumbai. “The compelling newsflow around climate change and work-related issues is driving this shift.”

Avendus expects to raise $1 billion over two years with its ESG fund and sees around 70% of that money coming from overseas investors. Laijawala declined to say how much his fund has raised so far. The firm has an exclusive agreement with proxy advisory firm Institutional Investor Advisory Services India Ltd., or IiAS, to assess NSE Nifty 100 Index companies based on ESG scores, and aims to invest in no more than 25.

Global investment based on ESG strategies stood at nearly $23 trillion at the end of 2015, according to the most recent data available from the Global Sustainable Investment Alliance, published in a report sponsored by Bloomberg LP, the parent company of Bloomberg News. While sustainable investment is now well-entrenched in Europe and the US, the concept is just getting off the ground in India.

Investment Scenario

The timing couldn’t be better for Avendus, a Mumbai-based financial company backed by KKR & Co, as corporate India struggles with a host of governance issues ranging from troubled relationships between companies and their founding firms to poor disclosures on debt.

“In India, environmental issues are hard to ignore and corporate governance scandals loom large in investors’ minds,” said Dan Lefkovitz, an index strategist at Morningstar Inc. in Chicago. “Awareness is growing that ESG issues are material to financial results.”

India seized control of Infrastructure Leasing & Financial Services Ltd last year and is inspecting its books for audit lapses after a series of defaults by the conglomerate that roiled market sentiment. So far in 2019, allegations of financial irregularities have rocked the nation’s top drugmaker Sun Pharmaceutical Industries Ltd, Dewan Housing Finance Corp. and Essel Group, owner of India’s biggest television network.

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