Q1: Introduce us to ECube and your team
ECube – which stands for Engage and Empower for ESG – is a platform for creating a series of funds focussed on the theme of ESG in India to start with and then beyond.
The first fund that ECube plans to launch is India’s first active engagement ESG fund. The Fund’s focus is to transform ESG adoption in India Inc. through deep engagement with investee companies’ management and Board, by taking concentrated stakes (up to 10%) in these firms. Our goal is to raise USD 1 billion over the next 3 years and invest in 20 odd firms at an average ticket size of $50 million each over a period of 3 years.
We are confident that we will be successful for 3 reasons
- The various inflexion points for the potential of huge dividends from the ESG story of India
- ESG leaders beginning to deliver better Alpha &
- Experience & strong credentials of our team for an ESG fund.
ECube was founded by:
- Dr Mukund Rajan, Govind Sankaranarayanan and Alan Rosling, all ex-Tata Group,
- Chandru Badrinarayanan who is ex country head of MSCI India,
- Harish HV who is ex-Grant Thornton and
- Shankar Venkateswaran who was chief of sustainability at Tata.
We are also supported by Prof. George Serafeim of the Harvard Business School and Prof. Nick Robins of the Grantham Institute on our advisory board – two of the most distinguished people in the RI space – and Kiran Karnik, one of the most respected advocates for good corporate governance in India.
I joined this exciting team a few months ago bringing in my previous experience at the PRI & Aditya Birla Capital.
Q2: What are the goals of your engagement-focused approach? How will this add value?
First, we focus on the mid-cap space, where the scope to engage and enhance ESG practices is better than in larger companies.
Then,we will only invest where the promoter shows a strong intent for ESG enhancement and has a good corporate governance track record.
After these first two filters, we apply other filters from our proprietary framework and begin engaging with the company at a deeper level.
We differentiate ourselves with our plan to document actions based on our due-diligence process, in an MOU with the company/management.Essentially, we operate a private equity style engagement strategy in a listed equity market space and will appoint a designated operating partner who will regularly monitor progress of the company in line with the MOU and the pre-determined Engagement Plan. This will result in material alpha.
The primary goal of our engagement is to identify material factors within the investee companies that will improve their financials and market share and generate healthy returns through ESG related improvements. Results from our engagements will be largely measurable as we want to showcase the impact we as investors have had not only on their financial returns but also on their ESG performance.
- Would additional R&D to lower the cost of an eco-efficient air conditioner increase the company’s market share amongst eco-conscious consumers?
- Or would integrating ESG in the lending process of a small finance bank improve its risk management system?
- Or would encouraging a better quality of board directors and management yield a better functioning company?
We have seen that such actions result in longer term value accretion.
It is our experience, that many mid-cap companies either don’t have resources to improve their ESG practices or don’t know what more they can do because nobody has ever asked them. ECube will help them evolve through financial support and advice and encourage them to reduce their ESG risks and leverage on the ESG opportunities and make them more financially viable and generate a higher alpha.
Q3: Tell us about your current fund. What differentiates it?
Our current fund – Quantum ECube India ESG Fund – is a joint venture between ECube and Quantum Advisors – a three decade old fund manager with more than $2.6 billion in equity assets under management.
We hope that the complementary skills between Quantum (portfolio experience) and ECube (operational, managerial and ESG experience) gives us the holistic skill-set required in the ESG investment space in India. Beyond this, we believe that a few other factors differentiate us:
- Our proprietary ESG due diligence framework which was developed by Shankar Venkateswaran who also co-authored India’s National Guidelines for Responsible Business Conduct
- A strong focus on identifying under-researched small and mid-market Indian companies (market cap of $300 million to $2.2 billion) for whom ESG could be an important value-lever to generate alpha.
- Also, it is the only fund in India that seeks to engage with companies not only through voting but also through active engagement by appointing operating partners.
Our actions and engagement would positively influence the strategy, operations & culture at the top levels of the firm, to make them more eco-efficient or local community-friendly & have better governance. Where companies are already doing all of this, we help them better their reporting to rating agencies and lenders. We strongly believe that our engagement and the additional disclosures resulting from our engagement will enhance the companies’ value and valuation.
Finally, our fund has a first mover advantage and investors are likely to benefit from being part of a Fund that has the potential to deliver outperformance while doing good. While India offers many investment opportunities, we believe that our unique approach to tap into under-researched mid-market companies who aspire to have better ESG focus and can become large caps in the future, should present long-term investors with significant profit potential.
Q4: What characteristics are you looking for in an investee company?
The two crucial and non-negotiable characteristics we look for in an investee company are:
- ahealthy corporate governance track record and
- a strong intent and willingness by the promoter to improve the company’s ESG practices.
Understanding the motivations of different corporate managements and their commitment to pursue high standards of governance, and having the ability to influence them to improve their ESG performance, can be very important in generating good returns in India.
Other than these, the Quantum ECube India ESG Fund will invest in companies that have a large potential to improve their ESG practices and with our help, reach a fairly advanced level and achieve operational improvements, reduction in borrowing rates and insurance premia, increased valuation multiples, and traction with investors.
We look for companies that have a strong ESG story to tell – whether it is banking to the under-financed or access to cheaper healthcare or affordable housing – and we are constantly trying to demonstrate the business case that there are ample opportunities for companies to perform better and continue to sustain in the long term by catering to the needs of the society and by being environmentally responsible.
We recently recorded a video with Mr. Harsh Mariwala, Chairman of Marico Ltd., where he speaks about how good ESG practices like waste management, material recycling, water stewardship and farmer’s welfare have helped Marico’s growth, as compared to its peers. A lot of our time and effort goes into pro-bono ESG advocacy through articles, conferences and panel discussions with the explicit aim to mainstream ‘ESG’ in India.
You can find most of those on our website.
Q5: What tips would you give to international investors / analysts looking to engage with Indian companies?
I think Indian companies have definitely opened up to ESG being a differentiating factor that offers them competitive advantage. This has led to a rapid uptake in sustainability reporting by these companies vying for a better ESG rating by agencies. While this is a positive, some companies have also learnt to ‘game’ the system where they tick all the right boxes. But when you dig a little deeper, they lack substance.
So, one of the biggest tips I can give to international investors/analysts engaging with Indian companies is to have someone or some service provider on the ground who knows the issue/company inside out and is not just reading about it through some third party ESG report or relying on information given by the IR of the company.
You will get better data from a local researcher that speaks the language than someone who is sitting half-way across the world, especially if it is on an issue that is live and under-covered by media.
At Quantum ECube India ESG Fund, we will try to tackle this not only through localised research but also by tapping into our independent networks. Good ESG data especially in the small and mid-cap segment has always been a challenge in India and the effort to extract this data would prove worthwhile for investors in the long term.
Q6: How has sustainable investment evolved in India? Which issues are prioritised? What do you expect to happen next?
Ah – now that’s my specialist subject. There’s so much I would like to tell you that I’ve actually written it as a full blogpost on SRI-CONNECT (Editor: See A postcard from ESG in India). Much has changed and there is promise of better to come so do get in touch if you are interested.
Q7: What is your favourite sport to play and to watch?
Of late, I have taken to CrossFit and Functional Training quite regularly and I am kind of addicted to that post-workout feeling.
I don’t actually enjoy watching sport – but I do enjoy the feeling of watching cricket with my dad and husband – only because they get really animated and hysterical – which is fun and funny to watch. J