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Harnessing Growth: India’s Transition Reflected in Sustainability Commitment

November 18, 2021

Read Time 12 MIN


Over the last several years, India has undertaken tremendous strides to address environmental, social, and governance (ESG) factors. Looking closer at these advancements, there is perhaps no more impactful or timely focus than India’s continuing collective effort on sustainability, driven by policy objectives and manifested in the corporate initiatives of its leading companies. On November 1, 2021, in his address at the COP261 global climate summit in Glasgow, Scotland, Prime Minister (PM) Narendra Modi shared India’s commitment to climate change mitigation and its transition to net zero economy by 2070. We believe in the credibility of India’s environmental pledge, in addition to the continuing importance of its social and governance platforms.

In this research piece, we discuss the possible pathway to India’s environmental goals, as well as select investment opportunities that reflect ongoing progress across the ESG landscape. Given the relevancy of sustainability initiatives, whether a company is a green beneficiary,2 green re-investor3 and/or “greenabler”,4 the green transition will involve significant capital formation and innovation and we expect the VanEck Emerging Markets Equity Strategy (the “Strategy”) to invest heavily in the lead players in India’s, and the global, transition.

Although many of the most successful facilitators in the green transformation are unlisted, or possibly not even founded yet, our portfolio is already invested in some of the most forward-looking, sustainable and structural growth companies in the space—Reliance Industries Limited (4.03% of Strategy assets), HDFC Bank Limited (4.85% of Strategy assets) and Cholamandalam Investment and Finance Co. Ltd. (1.45% of Strategy assets).

India Transition—Key Themes Shaping the Country’s Transition towards Sustainability

Theme #1—ESG Policy and Regulation Development on the Way


  • India is home to 17% of the global population, as well as the largest “Gen Z” contingent of any country. At the same time, it is one of the largest contributors to carbon emissions. As India enters a new growth phase, enabled by digitization, improving fiscal conditions and infrastructure investment, policy urgency is imperative to ensure that incremental new energy and auto demand are met with minimal increased emissions and, at the same time, a reduction from the current high pollution levels.


  • On the policy front, last week, PM Modi made the following commitments5:
    • Non-fossil fuel energy capacity to 500 GW by 2030.
    • 50% of energy requirements from renewable energy by 2030.
    • Reduce the total projected carbon emissions by 1B tonnes from now to 2030.
    • Reduce the carbon intensity of its economy to less than 45% by 2030.
    • Achieve the net zero target by 2070.
  • Heavy investment, innovation and behavioral shifts will lead change. Quality of life goals such as clean sources of drinking water, affordable housing, etc. all require mass adoption and scale. Given India’s development stage grass roots projects like Tap Water for All, Clean India Mission and Clean Cooking Fuel for All have not only moved the country in the right direction environmentally, but have also had immediate, material social impact—simultaneously lifting many out of poverty and illiteracy.
  • Indian companies are subject to mandatory ESG disclosure regulations, leading to the country’s high ESG disclosure rates. These include overarching guidelines on responsible business conduct, coupled with a Business Responsibility and Sustainability Report (BRSR) framework, which guides corporate disclosure. As we look forward, one area of improvement would be broader adoption of international reporting guidelines as the next step.6

Exhibit 1

India fares well in disclosures with 97% of MSCI India constituents publishing sustainability reports. Going forward, one area of improvement would be broader adoption of international reporting guidelines and engagement of external audits.

Exhibit 1

Exhibit 1

Source: Morgan Stanley Research, Refinitiv. Data as of October 21, 2021.

Theme #2—Environment: Energy Transition is Key


  • Addressing coal fired power generation and oil driven automobiles is key—a fact easily punctuated by the simple statistic that 22 out of the 30 most polluted cities in the world are located in India.7


  • Delivering the National Statement at the COP26 Summit in Glasgow last week, PM Modi has committed to very powerful and truly impactful Renewable Energy goals (please see above—under India’s ESG Policy and Regulation section). We believe there is an incredible opportunity for India to become a leading player in the energy transition space globally and for its companies to take on additional responsibility, exposure and recognition over time, with initiatives extending far beyond net zero, sustainable infrastructure, clean air and water and sustainable food targets. As we have seen with digitization, the sheer scale and development stage of the Indian market create massive prizes for chosen green consumer brands (especially in automotive), as well as scalable energy transition solutions.

Exhibit 2

Investing in Green Capex – Key Equity Themes

Investing in Green Capex - Key Equity Themes

Source: Goldman Sachs Global Investment Research. Data as of October 21, 2021.

  • Electric Vehicles (EVs): As part of its renewable energy transition initiative EV30@30, India has been encouraging hybrid and electric vehicle consumption vs traditional cars, aiming to increase EV sales to 30% of total vehicle sales by 2030. As a result, back in 2013, the government introduced the National Electric Mobility Plan 2020 and further supported EV infrastructure through its Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) subsidies in 2015 and 2019.8
  • Energy Storage: The National Energy Storage Mission (NSEM), another key policy objective, is to ensure enough energy storage is available in light of developing renewable energy and electric mobility. A National Mission on Transformative Mobility and Battery Storage (NMTMBS) was also put forward to support setting up large-scale integrated batteries and cell manufacturing mega plants in India, as well as localizing production across the EV value chain by 2024.9
  • Clean Air: To solve for air pollution, the pivotal policy is the National Clean Air Program of 2019. The program aims to reduce PM2.5 and PM10 concentration by 20-30% by 2024 (from 2017 levels), by strengthening monitoring as well as reducing vehicle and industrial emissions. The country also banned the sale of non-BS VI compliant vehicles.10
  • Other Initiatives: Include plans to reach 20% ethanol blending in petrol by 2025. The country also launched the National Hydrogen Mission (NHM), aiming to make India a global hub for the production and export of green hydrogen. There are also efforts to improve energy efficiency, prevent deforestation and electrify transport, etc.11

Theme #3—Social: Focus on Corporate Social Responsibility (CSR) Initiatives

Indian companies are subject to mandatory corporate social responsibility committee and spending requirements. India also recorded high rates of employee diversity (as reflected in the “Disclosed % of Female Employees” in the chart below) and opportunity policies disclosure (as reflected in the “Policy on Diversity and Opportunity” in the chart below). Moreover, the establishment of a Social Stock Exchange (SSE) was approved in September 2021.

Exhibit 3

India has recorded a 95% disclosure rate on employee diversity and opportunity policies.

Exhibit 3

Exhibit 3

Source: Morgan Stanley Research, Refinitiv. Data as of October 21, 2021.

Theme #4—Governance: Leader in Gender Diversity Requirement

Being one of the earliest Asian countries to impose a board gender quota, India had introduced many regulatory-driven corporate governance reforms, but COVID-19 has delayed progress in governance.

Exhibit 4

MSCI India constituents outperformed Asian peers with 100% disclosure rates in independence policy, female and independent board directors; board diversity policy disclosure lags behind marginally at 73%.

Exhibit 4

Exhibit 4

Theme #5—Leading Companies at the Forefront of India’s Transition

Reliance Industries Limited (“RIL”)
Company Description

Reliance Industries Limited (4.03% of Strategy assets) is a Fortune 500 company and the largest private sector corporation in India. The company has evolved from being a refining and textiles business to an integrated player across innovation-led digital services, entertainment, retail, materials and energy, together with recently-announced plans for material investments in renewable energy and storage.

ESG Opportunity

We believe the greatest ESG opportunity for RIL going forward is its investments to facilitate energy transition in India—natural gas, EV charging, hydrogen, ethanol blending, bio-fuels, recycled plastics etc. As an example, the company announced a $10B investment in solar, battery materials, hydrogen value chain, etc. in June 2021; and it is expected to create $60B in value by 2025 via silicon and hydrogen.

Key ESG Factors12
  • Environment

Reduction in Greenhouse Gas (“GHG”) Emissions.

RIL targets to become a Net Carbon Zero company by 2035. RIL is implementing new tech in the O2C business to minimize CO2 emissions and planning to develop next-gen carbon capture utilization and storage technologies to convert CO2 into useful products and chemicals. Gross global Scope 1 emissions (Metric tons CO₂-e) cut 6% year-on-year in FY21; Scope 2 emissions cut 14%.

Improvement in Specific Energy Consumption.

Top quartile performance based on Solomon’s Energy Intensity Index,13 key strengths noted include energy efficiency and operational availability. Across manufacturing sites, Reliance has taken up several energy optimization projects, waste heat recovery projects, opportunistic equipment upgrades to improve on energy efficiency and resource conservation.

Percentage of Energy from Renewables.

RIL has registered eight CDM14 projects with the United Nations Framework Convention on Climate Change (UNFCCC). It is working towards using renewable power from the grid and green hydrogen to achieve their target of net zero carbon.

  • Social

Workforce Health & Safety, as reflected in Total Recordable Incident Rate (TRIR).

The company follows a holistic Health, Safety and Environmental (HSE) policy at a group level. Its HSE performance continues to be in the top quartile amongst its peers.

Employee Engagement, Diversity & Inclusion, as reflected in training hours per employee, percentage of female professionals in a workplace and Corporate Social Responsibility (“CSR”) spend as a % of revenue.

RIL is fully committed to proper workforce training. As a result, the company was awarded the National Awards for Excellence in Training and Development for Best Results Based Training.

During the year 2020-2021, RIL successfully achieved a ratio of 16.9% of women employees. On the board front, of the total 14 members of the board of directors – two female professionals were represented as director level. To further develop your women leaders, the company launched WE Women Leaders, a focused intervention for high performing women at the management level.

The company’s CSR initiatives spanned across healthcare, medical oxygen supply, emergency meal distribution, supply of free fuel, masks and awareness creation. Empowering the underprivileged, enhancing their access to better amenities and increasing the outreach of community initiatives to 20 million people by 2030 with the minimum CSR expenditure at 2% of net profit.

  • Governance

RIL has an extremely talented leader and leadership team with precise and bold visions, as well as a strong execution track record spanning across multiple decades.

The company’s sustainability data is being independently audited by KPMG.

RIL has board level oversight of sustainability issuers, as reflected by its Health Safety and Environmental Committee.

The issuer reports in compliance with 3rd party sustainability standards.

HDFC Bank Limited
Company Description

HDFC Bank (4.85% of Strategy assets) provides corporate banking and custodial services and is active in the treasury and capital markets. The company has implemented measures to ensure equal access to financial services such as specific banking activities in rural regions, social financial services (e.g. microfinance) and community investments.

ESG Opportunity

The bank empowers small and medium businesses with simple digitally enabled access to credit, with very low carbon output that makes the economy more sustainable, increases fiscal revenue, therefore giving the government more resources to invest in sustainable infrastructure.

Key ESG Factors15
  • Environment

HDFC Bank intends to become carbon neutral by 2031-32. As part of this initiative, they are looking at reducing emissions, energy and water consumption.

The bank has taken initiatives to reduce its GHG emissions. These include replacement of diesel generators (DG) sets up to 40KVA with lithium ion batteries, and up to 125 KVA with gas generators.

  • Social

Increased focus on SME lending over the past couple of years and large business coming from semi-urban and rural areas have further helped the bank to achieve its social objectives.

The bank has been closely working with the government both at the central and state levels. It has an equity investment of over 9% in CSC e-Governance Services India Ltd. CSCs, operated by Village Level Entrepreneurs (VLEs). As a result, more than 50,000 women received Self-help group/Joint Liability Group loans through CSC VLEs.

  • Governance

The bank ranks highly in terms of independence of board and its conservative accounting policies.

The company has disclosed 2 fines, imposed by the Reserve Bank of India, worth 10 million rupees each. One fine was imposed on June 13, 2019 for non-compliance with directions issued by RBI on Know Your Customer (KYC) / Anti-Money Laundering (AML) Norms and on reporting of frauds. The second fine was imposed in January 2020 for failure to undertake on-going due diligence in case of 39 current accounts opened for bidding in IPO.

Cholamandalam Investment and Finance Co. Ltd. (“Chola”)
Company Description

Cholamandalam Investment and Finance Company Limited (1.45% of Strategy assets) is a non-banking finance company, specializing mostly in the area of financing of all sizes of commercial vehicles and related working capital. As the economy modernizes and logistics becomes more efficient, there will be material demand to finance larger, newer fleets that will increasingly include EVs and EV related infrastructure.

ESG Opportunity

The big opportunity, considering Chola is very active in the vehicle financing space, is to focus on the EV ecosystem and increase the company’s exposure to the space over the next decade.16 India desperately needs to modernize its light and heavy freight haulage fleets, moving to lower emissions standards and electrified solutions as quickly as possible.

Key ESG Factors17
  • Environment

Being a retail finance lender, there has not been much environmental focus when it comes to lending.

Chola has not disclosed any details related to its GHG emissions or energy consumption. The company has no activity relating to consumption of energy or technology absorption. Chola has stated that it does not have any project related to Clean Development Mechanism. It has not taken any other initiatives on clean technology, energy efficiency, renewable energy, etc. No show cause/ legal notices received from CPCB/SPCB are pending at the end of FY2020.

  • Social

Largely focused on commercial vehicle financing lending in the semi-urban and rural areas thereby driving social objectives.

Chola is committed to financial inclusion, with over 82% of its branches located in India’s Tier II cities18 and beyond. It has a long history of financing First Time Borrowers (FTB) and New To Credit (NTC) customers.

  • Governance

Best in class standards in terms of board independence, conservative accounting and recognition policies.

Chola reported that there were no penalties, punishment or compounding of offences against the company, directors, officers in default during FY 2020. It disclosed that no case was filed by any stakeholder against the company regarding unfair trade practices, irresponsible advertising and/or anti-competitive behavior during the last five years and is pending at the end of FY 2020.

Outlook – India’s Future is Green

India is well positioned to enter a potentially vast new green capex in the near term, driven by supportive government policy and an accelerating growth outlook. We believe energy transition, EV and logistics (the latter representing 15% of GDP) will be a prevailing theme in India (as well as globally), as the country executes on its climate change mitigation commitments and moves toward the net zero target. We also believe that forward-looking, sustainable and structural growth companies such as Reliance Industries Limited, Cholamandalam Investment and Finance Co. Ltd. and HDFC Bank Limited will have a key role to play in making the green transition a reality.

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1 COP26 stands for the 26th Conference of Parties to the United Nations Framework Convention on Climate Change (UNFCCC). This year, the Conference is being held in Glasgow, Scotland, United Kingdom, from October 31 through November 12, 2021.

2 Green Beneficiaries are defined as companies with revenue exposure to rising investment towards Net Zero, Infrastructure and Clean Water goals and above-average corporate returns. Source: Goldman Sachs Global Investment Research. Data as of October 11, 2021.

3 Green Re-Investors are defined as Green Beneficiaries investing a high or rising percentage of cash flow into capital expenditure (capex) and Research and Development (R&D). Source: Goldman Sachs Global Investment Research. Data as of October 11, 2021.

4 “Greenablers” are defined as building block sectors where increased reinvestment will be needed more urgently due to project lead times to alleviate/avoid future supply-chain bottlenecks (i.e. semiconductors, copper/aluminum, electricity transmission and cybersecurity). Source: Goldman Sachs Global Investment Research. Data as of October 11, 2021.

5 Source: Bloomberg. Data as of November 1, 2021.

6 Source: Morgan Stanley Research, Refinitiv. Data as of October 21, 2021.

7 Source: IQAir.

8 Source: Morgan Stanley Research, Data as of October 21, 2021.

9 Source: Morgan Stanley Research, Data as of October 21, 2021.

10 BS VI imposes stricter emission regulation standards on vehicles. Source: Morgan Stanley Research, Data as of October 21, 2021.

11 Source: Morgan Stanley Research, Data as of October 21, 2021.

12 Source: VanEck Research, Macquarie Research, ISS. Data as of July 5, 2021.

13 Solomon Energy Intensity Index® stands for a petroleum refinery energy efficiency metric that compares actual energy consumption for a refinery with the “standard” energy consumption for a refinery of similar size and configuration.

14 The Clean Development Mechanism (CDM) is a United Nations-run carbon offset scheme allowing countries to fund greenhouse gas emissions-reducing projects in other countries and claim the saved emissions as part of their own efforts to meet international emissions targets. It is one of the three Flexible Mechanisms defined in the Kyoto Protocol. The CDM was intended to meet two objectives: (1) to assist non-Annex I countries (predominantly developing nations) achieve sustainable development and reduce their carbon footprints; and (2) to assist Annex I countries (predominantly industrialized nations) in achieving compliance with their emissions reduction commitments (greenhouse gas emission caps).

15 Source: VanEck Research, Macquarie Research, ISS. Data as of July 5, 2021.

16 Source: VanEck Research, Macquarie Research, ISS. Data as of July 5, 2021.

17 Source: VanEck Research, Macquarie Research, ISS. Data as of July 5, 2021.

18 India’s Tier II cities are defined as smaller cities, statistically 1 million in population and are usually regional hubs, such as state capitals or industrialized centers. Examples include Pune, Cochin, Mangalore and Dehra Dun.

Please note that VanEck offers investments products that invest in the asset class(es) or industries included in this commentary.

*All company weightings are as of October 31, 2021. Any mention of an individual security is not a recommendation to buy or to sell the security. Strategy securities and holdings may vary.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources is believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

Emerging Market securities are subject to greater risks than U.S. domestic investments. These additional risks may include exchange rate fluctuations and exchange controls; less publicly available information; more volatile or less liquid securities markets; and the possibility of arbitrary action by foreign governments, or political, economic or social instability.

ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the strategy’s investment objective, inclusion of this statement does not imply that the strategy has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.

ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

Van Eck Associates Corporation

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