Impact investor Aavishkaar Capital in partnership with KfW, a German state-owned investment and development bank, have launched an “ESG First Fund” focused on strengthening the Environmental, Social and Governance (ESG) practice of mid-cap businesses while offering them flexible capital to scale to new markets, said senior executives of Aavishkaar in an interaction with Mint.
Leveraging on the global drive for sustainability and equality, the ESG First Fund is a $250 million fund focused on investing in Africa and Asia with the mandate of generating superior ESG outcomes and commercially viable financial returns alongside positive social impact. The fund will help businesses improve their ESG standards so that they can capitalize on the increasing consumer preference for ecologically-conscious, gender-equal and purpose-driven businesses and meet increasing demands on corporate due diligence in the course of regulatory measures in the European market.
The ESG First Fund is sector agnostic but will focus on companies with high exports towards Europe.
“ESG has traditionally come from a background of compliance and risk mitigation. And we are moving that value creation. They are two very, very different things. Compliance is a checklist whereas value creation is where you apply yourself and say how do we take this beyond and above where regulations or basic requirements have to be met,” said Ashish Patel, Managing Partner, ESG First Fund - Aavishkaar Capital
Abhishek Mittal, partner at Aavishkaar Capital added that the value creation in these companies through improving ESG standards could come in the form of Increased revenues either by getting access to a new market or the ability to charge a premium or reduced costs by adopting greener forms of energy.
Beyond the improvements in commercials that better ESG standards can bring, by adhering to higher standards companies also stand to benefit from access to new pools of capital, said Vineet Rai, founder and chairman of Aavishkaar group.
“You can get access to more capital, differentiated capital and longer term capital. The kind of capital that was available to you, it can dramatically change,” he said.
The fund will look to invest in companies with revenues of Rs50 crore to 250 crore and the fund has a long life of 15 years.
“The approach to thinking about the investing style is very different from what a classical Aavishgkaar investment does. The stage of investing is different, the growth expectations are different, the size and scale of the company is different, and the management teams may also be reasonably different,: added Rai.
Aavishkaar Capital has so far raised six funds with $400 million in assets under management.
“With our investment of 50 million euros, we want to help set up a fund that demonstrates that increased respect for ESG can be a viable investment and business model. The German government has passed a due diligence law that obliges German companies to pay attention to social and ecological sustainability in their global supply chains. Corresponding European regulation will follow. It is important to us that we do not exclude companies in other parts of the world from supply chains towards Europe, but rather enable them to participate in better due diligence management. The fund is therefore primarily intended to help SMEs in Africa and Asia to meet the growing demands from European companies,” said Anosha Wahidi of BMZ, Federal Ministry for Economic Cooperation and Development Germany.