Pandemic Chaos Triggers Fresh Interest in ESG Investing
Q&A with Kunal Sawhney, CEO Kalkine Group
Businesses, the value of currencies, market prices of various traded securities, and the overall size of commercial operations are highly susceptible to numerous factors. That is the primary reason why most enterprises take the initiative of building their own contingency plans and undertake several measures that can safeguard them from likely risks.
These factors could be environmental, socio-economic and political issues, bilateral trade relationships, operating guidelines, limitations, subsidies, government trade policies, monetary policy ascertained by central banks and the underlying guidelines issued by regulators, bankers, governments and the local authorities. Other than these, there are various compulsory requirements such as tax payments, debt servicing capabilities, repayment of non-banking debt obligations, and following the periodic cycle of coupon payments.
A large section of business owners often maintains designated teams to oversee such operations in order to avoid potential chances of business failures and to contain the risk associated with the aforementioned factors. However, there is a lengthy list of business complexities and adversities that remains unattended due to which businesses get exposed to the risk.
Today we are going to discuss various aspects of ESG Investing with Kunal Sawhney, an accomplished financial professional and founder & CEO of Kalkine Group, a leading Equity research firm, Media house and an Investor relations group based out of Australia. The group’s operations, under Media and Subscription platforms, are spread across the capital markets of Australia, the United Kingdom, New Zealand, and Canada, with recent expansion in California, the US. He will enlighten us with his views on how this mode of investing has been thriving amid the pandemic.
Kunal, first we would like to ask, is it true that ESG is where profits are?
Kunal: That’s very much true, not just because of the increased focus on ESG amid the pandemic but because of the interconnect between sustainability and investment returns. No doubt, the pandemic has led to immeasurable changes in the society, including the way of investing, but asset owners had started focusing on ESG even before the pandemic, realising its importance, and many are now beating the markets by putting money in companies with environmental, social and governance priorities.
Some businesses are unable to weather a crisis. Why do you think that happens?
Kunal: In most cases, the operating model of such businesses is faulty or incapable of addressing the risk. But sometimes, the enterprises and industries fall prey to an unforeseen event for which they haven’t made any single-step plan or contingency measure.
This happened when the coronavirus pandemic erupted on a massive scale, sending shockwaves across the world, hitting every business and industry alongside the immense destruction to the livelihoods of people.
By the time businesses started to respond to the Covid-19 pandemic, a considerable chunk of their respective market capitalisation was eroded, while the toplines witnessed a major wipe-out due to unprecedented challenges brought in by the grey swan event of Covid. The consequential effect—that of businesses feeling the heat—was duly reflected by the national economies with most of the countries reporting a major contraction in their respective GDPs.
How has the pandemic changed investing priorities?
Kunal: Pandemic gave an immense rise to critical thinking, especially when it comes to investing and putting one’s hard-earned money into various tradeable, as well as non-tradable assets. Investors quickly realised that it was important to rejig the respective trade setups to steer through the deadly aftermath of the pandemic and the evolving nature of Covid-19 (SARS CoV-2) virus.
The proportion of people investing in sustainable businesses, moreover, in enterprises that have a futuristic vision for their upcoming projects by giving substantial precedence to the environmental, social and governance (ESG) aspects, have grown extraordinarily in the pandemic era.
Inferentially, the worst experiences during the still-expanding size of the pandemic have increased the unpredictability amidst the market participants when it comes to most of the conventional businesses that are operating without maintaining an adequate balance of ESG.
The fear of losing money has invariably escalated to a never-seen-before level as the pandemic has battered the situation, so much so that individuals are mandatorily required to spend regularly on their well-being, at a time when returns on investments have minimised, and regular streams of income have been hit in a big way.
Can you tell our readers, what does ESG investing refer to?
Kunal: ESG, typically, refers to environmental, social and governance (as stated earlier). The investing framework that is designed to follow the outline of ESG paves the way for ESG investing. In simpler terms, sustainable investing can be interchangeably used in place of ESG investing as businesses are now shifting their operating models to become more environmentally friendly, socially captivating and developing a substructure that can thoroughly support the ‘going concern’ factor.
Over the course of the last decade, businesses working towards sustainable causes have attracted millions of investors, with a few of them superseding the operational scales of the competitors involved in conventional business within the same industry. The enterprises operating to develop affordable solutions to harness renewable sources of energy and upgrade the existing infrastructure for electric vehicles have been quite successful in some way or the other.
The small-scale business units that have institutionalised their setups with a vision to reduce their carbon footprint by collaborating on developing efficient batteries that can be utilised in vehicles, aircrafts, and other machineries have collectively assisted key businesses that are working for the same cause on a larger scale.
And why do you feel that investors are inclined towards ESG investing?
Kunal: Market participants have encountered uncontrolled destruction in the market value of their assets, with a major section of investors even witnessing business closures, partial shutdown of operations, minimised-to-null earnings during extended periods of lockdowns and other stricter restrictions imposed by the governments and regional authorities as part of pandemic-induced constraints.
Now, most investors are looking forward to an added advantage of investing in any particular asset, whether the asset or the underlying security is backed by a sustainable business or not. The commercial units that have established themselves in line with the principles of ESG have been advantageous in uncertain times as they are largely preferred over similar traditional units that are not following the methodology of ESG.
Companies that are pledging to reduce carbon emissions over the span of the upcoming five to ten years have collectively backed the government in its comprehensive plan to achieve a net zero status as soon as possible. On the other hand, these very companies are being preferred by the investors as they are rigorously working to implement newer strategies that can be beneficial for the greater good of the business, as well as the shareholders.
The corporate settings started with a purpose to relieve an environmental problem such as decreasing the overall dependency on fossil fuels, developing more efficient forms of rechargeable batteries, and inventing clean energy products. These are being appreciated by their major lenders, as well as the small shareholders.
Can we say that ESG investing overpowers conventional assets?
Kunal: Not in all cases. Not as of now. ESG investing has recently started getting investor preference as most of the breakthroughs remained in the research and development stage for a prolonged period. Whether we talk about energy or other sectors, there is still a considerable gap between the largest new-age business setup and an age-old conglomerate operating in the same industry, providing a similar product with distinctive approaches.
For instance, Elon Musk-led Tesla Inc has managed to amass a huge appreciation in market capitalisation in the last 15-18 months. Subsequent to the massive surge in the stock market value, the California-headquartered automotive and clean energy firm stands tall as the largest automaker in the world by market capitalisation, above Toyota. That is a huge achievement for a recently orchestrated company, beating conventional businesses that have been operating for many decades. This piece of information partially depicts the overall picture as the comparison based on market capitalisation is largely dependent on the recent share price performance of the company.
However, Tesla falls noticeably short when it comes to the overall revenues and the sales figure as compared to the top 10 automakers worldwide. In terms of sales, Toyota is still the biggest carmaker in the world, followed by Volkswagen AG, Daimler AG, and Ford Motor Co. Many businesses that are operating in line with the ESG principles are still miles to go when they surpass the scale of conventional enterprises as these companies are also evolving by the time, incorporating new-age technologies and advancements in the operational metrics.
Therefore, it is quite early to comment whether ESG investing will outperform the conventional assets as corporate entities behind traditional investment classes have been building a war chest to compete with the so-called clean energy companies.
Kalkine is entering the US markets. How do you see the ESG investment scenario there?
Kunal: Kalkine as an organisation has been endeavouring to be a true investing partner to all its patrons. After successfully gaining the trust of Australian, New Zealand, UK, and Canadian investors, we are now entering the largest markets in the world, the United States, particularly California. The US markets are not only the biggest but are highly regulated, and if we talk about sustainable investing, it accounts for almost 35% of the total US assets under management and continues to surge. We are hopeful of making a mark in the region, as the health of the global economy has emerged more encouraging than it was a year ago after the successful vaccine drive across the globe.
To conclude, what are your plans going forward and where do you see Kalkine in the landscape of changing investing scenario?
Kunal: Kalkine is aiming to become a Globally Known Name in alignment with the Vision of the Company – To be Your Trusted Companion for Financial Empowerment.
Kalkine Group is in legal discussions to venture into another line of business, i.e. Brokerage business. The Group shall be managing portfolios of HNIs across key jurisdictions. Planning for approvals and registration process is already underway for the same.
In the US, the Group is now eyeing to tap burgeoning market opportunities in other US states, such as New Jersey and Connecticut in the next 6-12 months. Besides, 2021 is also critical as the Group aims at expanding the global reach when it comes to Kalkine TV offering.
Overall, the Group is focussing more on the innovation side of things: more tech-led research, new data-science based analytical products. The Group is also looking at AI-driven Decision Engines and Robo Advisors as a part of the technology roadmap.
About Kunal Sawhney:
Entrepreneur with revolutionary ideas; financial professional with wealth of knowledge in Equities, aiming to transform the delivery of equity research through tech-driven digital platforms
With his knowledge, skillset, and overarching vision, Kunal established one of the fastest growing equity market research firms across Australia in year 2014; and subsequently, in other emerging & developed markets – Kalkine – A business that is based on Digitally Powered Architecture and Extensive Data Science led Premium Research. Kunal’s entrepreneurial and commercial skills backed by the passion to establish a tech-empowered research platform, helped in building Kalkine’s global presence across diverse geographies – Australia, New Zealand, Canada, and the United Kingdom. Further, the plans for the US launch in 2021, have set the premise for attaining an all-encompassing client reach for Kalkine’s Subscription and Media Operations.
With a Master of Business Administration degree from University of Technology, Sydney; Kunal’s business acumen has enabled his brainchild, Kalkine, help clients navigate through equity related matters in a proficient and seamless manner.
Kunal is featured regularly on CNBC, Sky Business, Sydney Morning Herald, Yahoo Finance, Bloomberg, Global Banking and Financial Review and many more.
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