How Sustainable Investing Is Changing The Investment Trends

Sustainable investing in India refers to the integration of ESG (environmental, social and governance) factors into investment decisions. It provides financial returns, but it delivers a better positive environmental and social outcome. In recent times, this form of investment approach has gained much importance for Indian investors since they have developed an interest in inculcating values such as responsible environmental concern, equitable society, and transparent governance into financial decision-making processes.

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The Regulators

The regulatory environment in India has been dynamic and accommodative to sustainable investing. In 2012, SEBI issued the framework on Business Responsibility and Sustainability Reporting (BRSR) according to which the top 1,000 listed companies have to file ESG data comprehensively. It adds greater transparency and accountability in the practice of corporate sustainability. ESG disclosures also resonate well with the efforts of SEBI towards taking corporate governance into a more mature stride and taking strides that responsible business practices take.

Market Flexibility and Investor Perception

The Indian market has taken the spurt of sustainable investing quite reasonably. ESG-oriented mutual funds have grown continuously till 2023 at an astonishingly high growth of 36 per cent, and this has also seen growth in the demand side because of more and more investors craving these types of products. The second factor has been that almost all the ESG-related investment products made their debut through green bonds and ESG funds in the recent past few years, hence within the fold of sustainable investment, much more and much more investors may come.

It further recognises the sustainability of finance by introducing incentives for green projects and investments in renewable energy. It is seeing the rise of ESG funds, which also plans for the development of a green taxonomy to further advance the market in the direction of sustainable investment.

Advantages and Challenges 

There are a couple of benefits before the Indian investor too. This introduces the double edge for the Indian investor: one aligns investments with ethical values and also brings long-term financial growth. Relatedly, companies embracing good ESG practices tend to do well over time; they are better risk managers and capitalise faster on emerging opportunities in sustainability.

However, with issues such as non-standardised ESG data and greenwashing, among others, there has been no end to effective decision-making. Thus, though the SEBI BRSR framework is in progressive development, it still needs a more holistic and standardised reporting system for ESG.

Mahek Tomar, founder & CEO, India's Future Investors, highlights, "Sustainable investing is no longer just a trend; it's becoming a key focus for investors worldwide. Right now, renewable energy is leading the way, especially with the global shift toward reducing carbon emissions. Electric vehicles and their supporting infrastructure, like charging stations and battery technology, are also incredibly promising. Beyond energy, sectors like sustainable agriculture, water conservation, and waste management are gaining attention as investors look for ways to address critical environmental challenges. Even technology, particularly solutions that improve energy efficiency or enable better resource management, is opening up exciting opportunities for sustainable growth".

While talking about Green bonds and ESG-focused funds, Tomar states, "Green bonds and ESG funds are becoming cornerstones of sustainable investing. In the next five years, I think we'll see their role expand significantly. Green bonds are already helping fund projects like renewable energy and sustainable infrastructure, and this is only going to accelerate as more governments and companies commit to net-zero targets. ESG funds, on the other hand, are becoming more refined—they’re not just about ticking boxes anymore. Investors want to see real impact, so I expect better transparency, clearer metrics, and stronger regulations around these funds. With growing awareness among both institutional and retail investors, green bonds and ESG funds are set to play a much bigger role in shaping a sustainable future". 

These sustainable investments are mostly driven by support from regulations and investor sentiments. It is an excellent opportunity at the moment since market maturity coupled with improvement in transparency is driving this shift forward. It can be part of portfolios offered to investors who are keen on long-term financial return while focusing on such goals for sustainability.