Fortune India has learnt that Fabindia that sells ethnic products handmade by craftspeople from rural India had engaged Ernst and Young for its ESG audit. Fabindia is planning to launch its IPO soon where the company will position itself as an ESG-compliant IPO. ESG compliance is one of its major selling points to future investors and Fabindia may become the first Indian IPO to be totally ESG compliant, voluntarily, even before going public.

This is an opportune time for more IPOs like Fabindia as there is a growing demand for companies that can qualify for ESG Funds, especially of that of Foreign Institutional Investors (FIIs).

ESG compliances involve fulfilling the environmental, social and governance goals set-up by the government. As per a June 2021 circular by SEBI, it became mandatory for the top 1,000 listed companies in India (by market capitalisation) to file Business Responsibility and Sustainability Report (BRSR) from FY 23. The BRSR report highlights ESG compliance for the top 1,000 listed companies. For other public listed entities and private players, ESG compliance is totally voluntary.

However, even without any ESG mandate, Fabindia was pursuing exemplary ESG practices as social welfare of indigenous artisans and farmers. Environment friendly products and production processes are the core values that the company seems to be founded upon. This is why it is the first of its kind IPO where an already ESG compliant private player is launching its IPO.

EGS Compliance: why it should matter to listed companies?

Amy Domini, the founder and chair of Domini Impact Investments says that the big question that is now being asked is – What impact are your investments having?

Domini is considered to be one of the most powerful global voices for socially responsible investing. Domini featured in Time magazine as one of the Time 100 list of the world’s most influential people, in 2005.

Asset Management Funds in Europe and America already have dedicated fund managers to invest in companies that are actively pursuing ESG goals and focus on sustainable development. ESG Investing or Sustainable Investing has grown in the European and American markets to the extent that now there are mandatory disclosures and regulations in place to curb investment activities akin to Greenwashing in ESG initiatives. Greenwashing is a term used to define efforts and initiatives that are done in the name of environmental protection but only for the sake of appearances. Greenwashing is usually done by companies whose business damages the environment but who cover up that damage by marketing-promotions of some minor effort to create a perception that the company is environment conscious.

This means that Foreign Institutional Investors (FIIs) investing in ESG Funds will be drilling deeper into the activities of companies before investing. In India, except for the companies who are mandated to comply with the ESG goals defined by the government, there will be rare entities like Fabindia who would fit the bill for Foreign Institutional Investors’ ESG Funds.

In fact, the growing Asset Under Management (AUM) of ESG funds is an opportunity for every listed company that is keen on making a social impact.

ESG compliant IPO

What makes ESG investing a force to reckon with