Businesses that prioritise sustainability are able to create value through a range of avenues
Both internationally and in India, green investing is gaining momentum, observes BCG in its India M&A report. Green investing refers to the practice of investing in environmentally responsible companies or projects that promote sustainability and conservation of natural resources. The trend of green investing has been fueled by the growing concern over climate change and the need to reduce carbon emissions.
The report has highlighted that businesses that put a strong emphasis on sustainability are able to generate value through a variety of channels, including improved access to finance and lower funding costs. For instance, high ESG companies enjoy a 0.5-0.7% lower cost of capital.
Green Deals are becoming a popular investing concept, with the switch to renewable energy acting as the main motivator. Investors are seeking chances to commit capital to businesses striving towards a sustainable future due to the growing need to address climate change and other sustainability challenges. Due to this considerable rise in demand for deals in the clean energy industry, green deals have become a more popular investment idea.
When opposed to non-green deals, "green deals" provide value in the short- and long-term. The volume and value of green deals have grown over the past few decades, with a sharp increase in 2021. The key factor driving agreements is the switch to sustainable energy.
Over a two-year period, green deals produce a 6.5 times larger relative total shareholder return than non-green deals.
These returns are higher as a result of improved financial access, the avoidance of carbon taxes and other regulatory concerns, cost savings from efficiency improvements related to decarbonisation, and the possibility of increased volume from more environmentally friendly products.
Investors are willing to pay a premium for renewable energy assets due to energy transition concerns. Businesses are able to make operational cost savings through decarbonisation-related efficiency gains. 2-3% revenue and volume upside potential from products marketed as climate-friendly.