Look at what is happening in Delhi. The state government has implemented an alternate-day travel plan [the odd-even rule] for vehicles to improve the city’s air quality. Not long ago, there were issues related to allocation of coal mines and telecom spectrum.
I see a common thread to all this. All these issues are ultimately connected to governance and how we address questions related to the environment,” says Navneet Munot, chief investment officer (CIO) at SBI Mutual Fund.
It was almost the end of the year when Forbes India met him at his ninth-floor office in Crescenzo in Mumbai’s Bandra-Kurla Complex. The office was nearly deserted as most employees were on their year-end holidays. Munot did not have that luxury as he was just back from Ahmedabad for a series of back-to-back meetings.
According to him, rationing measures will also be implemented in other areas like water and electricity. “The government might regulate supply of water and electricity too,” he says. Today, corporate India pays only a trivial amount for the water it uses and Munot feels that all this might change as climate change effects like drought and pressure on natural resources start to take a toll.
Munot took over as the CIO of the fund in December 2008 and since then, it has only grown in size. With total assets of Rs 1,00,055 crore under management, SBI Mutual Fund is the sixth largest mutual fund in the country. Its equity funds are at the top of their performance matrix. Over the last five years, SBI Mutual Fund’s Small & Midcap fund has grown by 22 percent annually, against a category average of 16 percent. The fund’s top holdings include Solar Industries, Manpasand Beverages and Atul Auto.
Similarly, SBI Bluechip Fund—a large-cap mutual fund which invests in stocks of bluechip companies—has returned 12.54 percent over the last five years compared with a category average of 7 percent.
To a large extent, the stellar performances of the funds can be attributed to Munot’s passion to invest in clean companies with good governance practices and a conscience to be environmentally responsible. Munot has focussed on areas related to corporate governance for many years.
He took up many issues raised by shareholders from the day he took office. SBI Mutual Fund was among the three mutual funds that opposed the merger of the scam-tainted Satyam Computers with Maytas Properties, where both the companies had common promoters. In 2014, his fund opposed Maruti Suzuki’s plans to set up a plant in Gujarat as a fully-owned arm of its Japanese partner Suzuki Motor Corporation. In both these cases, the fund felt that the moves of these companies were going to hurt the interest of minority shareholders.
Companies like Vedanta faced strong resistance in operating the Niyamgiri bauxite mines in Odisha and Maruti faced a backlash from investors because of the trouble with labour unions at its Manesar plant.
Munot follows a ‘matrix’ to avoid such companies. He has adopted ‘Environmental, Social and Governance’ (ESG) as his investment philosophy. The framework offers portfolio managers an insight into a company’s management, culture and risk profile by taking advantage of the increased level of scrutiny associated with the increasingly popular ESG analysis. It also gives teeth to minority shareholders to question the management if they feel board decisions are harmful to the long-term shareholder.
Foreign institutional investors (FIIs) have become very conscious about where they invest. The Forum for Sustainable and Responsible Investment (US SIF), a US-based membership association that works to advance investment practices in clean companies, is optimistic about sustainable investment. According to their study, the assets of funds that incorporated ESG have been on a trajectory of dramatic growth since 2007 in the US.
These assets—excluding assets of separate account vehicles and community investing institutions—stood at $4.31 trillion across 925 distinct ESG funds in 2014, which is more than four times the $1.01 trillion tracked in 2012.
Fund managers that use the ESG strategy account for around $1 for every $6 professionally managed in the US. In India, SBI Mutual Fund is one of the few funds that follows ESG systematically; it has checklists for each of the environmental, social and governance aspects.
One of the companies that Munot decided to invest in is VA Tech Wabag, which is engaged in water effluent treatment, and another is Thermax, an environmental engineering company. The fund decided to avoid metals in 2010 because the investment team felt that most of these companies were generating profits because they had access to natural resources which were underpriced in India. Likewise, the fund was negative on thermal power companies due to their greenhouse gas emissions and high carbon footprint.