New India Fund Flags ESG Focus in Emerging Markets

(Bloomberg) -- Bank J. Safra Sarasin Ltd. started a fund focused on stocks that meet environmental, social and governance criteria, the latest example of emerging-market investors entering a global rush for sustainable investment.

The JSS Responsible Equity India fund, which launched Tuesday as a partnership between Bank J. Safra Sarasin and Indian asset manager UTI, aims to invest in companies from lending firm Bajaj Finance Ltd. to generic drugmaker Ajanta Pharma Ltd., taking advantage of India's transformation into a middle-class economy that may eventually trail only the U.S. and China. With more than 1.3 billion people, rising wealth and low penetration in financial, health and consumer service industries, fund managers are starting to see the appeal in using sustainable themes to invest in India.

“It's a very appealing growth story,” said Zurich-based Jan Amrit Poser, head of sustainability at Bank J. Safra Sarasin. “To combine it with an ESG tilt is a winning strategy currently for addressing the demand.”

Equity investment based on ESG themes has been gaining traction gradually for years. In India, at least four funds based on ESG have started in the past two years. Investors poured an estimated $7.6 billion into global ESG emerging-markets equity funds in the first half of 2020, making strides to surpass the $11.4 billion in total flows in 2019, according to Morningstar Direct data.

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The UCITS fund is the first of its kind focused on responsible investing in India, and it will hold between 35 and 50 stocks that meet J. Safra Sarasin's matrix of ESG criteria, such as pollution and waste, commitment to human capital and board structure. While there are challenges in ensuring companies meet their sustainable promises, Poser said the firm monitors changes in ESG scores and keeps eligibility to businesses committed to improve.

Financial companies that meet ESG criteria will make up a large part of the fund's top holdings. As the middle class expands and demand rises for larger purchases that require credit and lending, financial stocks may be among the biggest winners, said Praveen Jagwani, chief executive officer of UTI International. UTI oversees $139 billion in Indian assets and will advise the fund.

“These types of businesses tend to have relatively low environmental impact, and if we can monitor and measure their social impact and governance issues, I think they're going to keep growing,” said Singapore-based Jagwani. “There's a far better awareness now of ESG issues.”

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