Calls for Socially Responsible Investing

The concept of socially
responsible investing (SRI) suggests that investors would invest in companies
that are acting in socially and environmentally responsible ways, and that such
investors would exit from investments in businesses that do not comport with
environmental, social and governance (ESG) criteria. Such investors maintain a
balance between financial sustainability and social impact without necessarily
preferring either over the other, i.e. the classic “win-win” situation.
While the concept of corporate
social responsibility (CSR) in broader terms has now become well-entrenched in
India, the focus on SRI has been far less. However, new calls for SRI in India
are being heard through the route of public interest litigation (PIL) filed
before the courts. The Hindu carries a report
indicating that certain Tata trustees have initiated a PIL seeking divestment
on shares held by the government-owned insurance companies in ITC Limited, due
to the latter’s involvement in the tobacco industry. The plea specifically
thrusts light on the inherent contradiction between the harmful effects of
tobacco and their impact on lifespan (a matter of concern for the insurance
industry). This is in addition to the need for the insurance industry to invest
with the primary objective of public welfare. A report in the Business Standard
highlights
other moves towards SRI.
While the route of undertaking
litigation to seek insurance companies’ divestiture from the tobacco industry
appears somewhat unconventional, it brings into focus the issue of SRI in the
Indian context. Ultimately, the concept of stewardship must imbibe within it
not only matters relating to voting on shares, but also the types of
investments that institutional investors may undertake. In addition to the stewardship
responsibilities that have been imposed (as discussed here),
insurance companies (and other institutional investors as well) are likely to
face pressure to invest in a socially responsible manner.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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