Governance is primary ESG priority for asset managers in India, but social risks are often overlooked

Asset managers in India “skilfully integrate responsible investing practices into their processes, aligning well with and, in some cases bettering counterparts in other emerging markets”, according to a recent report from RisCura, a global investment firm specialising in emerging and frontier markets.

The study, Moving the Needle – Stewardship in India, examines the stewardship and engagement practices of local listed asset managers in India, highlighting the integration of ESG factors as essential components of their strategies to mitigate investment risk.

The report shows there is a strong focus on governance in India, that emphasises due diligence and the need to avoid “bad actors”, defined in the report as significant and influential stakeholders whose actions, for better or worse, can materially impact the company’s performance.

“Even at the expense of potential returns from certain stocks and significant benchmark risk, the respondents maintain their commitment to thorough research,” said Malcolm Fair, managing director of RisCura.

“They focus on selecting the right companies, especially those with reputable ‘promoters’ and management teams, requiring a deep understanding of Indian societal dynamics and politics.”
However, RisCura identified a general reluctance among local asset managers to engage listed companies on social risks beyond labour practices and supply chain concerns.

While these societal, religious and ethnic inequalities are a considerable challenge, some managers’ cursory attention to these matters means they “totally miss the point of the S in ESG”, said Fairs.

The study also identified the importance not only of boots on the ground, but local knowledge, though collaboration between local and foreign asset managers is having an influence on engagement in the country.