LIC seeks ESG ranking ahead of IPO – Will it set a precedent?

  • India Infoline News Service
  • 09 Jan , 2022
  • 9:41 PM
Upcoming mega IPO of India’s life insurance behemoth, LIC manages to remain in the limelight consistently. This is because of the multitude of steps taken by the government ahead of the listing. The IPO will enable the government to push ahead its disinvestment agenda which has been missing the mark, year after year.

The recent development in LIC’s IPO saga is that the government is looking to get an ESG (Environment, Social and Governance) score for the country’s largest life insurer before tapping into the capital markets. This development stands out for the single reason that it’s the first time (in India) a company about to list has sought an ESG score. It underlines the rising emphasis placed by investors on ESG performance of a company. ESG investing has gathered increased momentum in the post pandemic world. In simple terms, ESG investing assesses the sustainability and societal impact of an investment in a company or a business. The purpose of ESG investing is same as traditional investing – to generate alpha or positive returns by investing in good companies. However, under ESG investing, investors look beyond the economic performance of a company and focus on the holistic value it creates for all stakeholders. Typically, stakeholders of a company include employees, customers, business partners, lenders, regulators, communities and the society at large.

Coming back to LIC, recent development gives rise to several questions. What is the role of an ESG score in ESG investing? Will LIC set a precedent for other IPO-bound companies? How can companies get favorable ESG score?

What is the role of an ESG score in ESG investing?

An ESG score rates the company on the basis of its ESG performance. Medium-to-long-term risks associated with E, S and G aspects such as a company’s environment footprint, employee/customer related practices, community initiatives and governance practices are identified and the impact (both financial and non-financial) of these are measured.

Analyses the impact of a company’s business activities on the environment.
Answers questions such as
Is the company using natural resources such as water, energy responsibly?
Is it reducing carbon emissions from its operations?
Is it keeping a check on generation and disposal of solid and e-wastes?
KPIs tracked
  • Carbon emissions
  • Energy conservation
  • Water conservation
  • Climate change
  • Creation and disposal of wastes
  • Sustainable products
Considers the company’s business relationships.
These include its customers, society, employees, supply chain partners and regulators.
KPIs tracked
  • Contribution to social causes
  • Employee welfare, health and safety
  • Human rights
  • Equal opportunity and diversity
  • Sustainable supply chain
  • Customers
  • Interests of all stakeholders

Focuses on the corporate governance practices of a company.
KPIs tracked
  • Clean accounting
  • Regulatory compliance
  • Ethical, fair and transparent business conduct
  • Interest of minority stakeholders
These scores are provided by companies such as MSCI, Sustainalytics, rating agencies, among others. These companies have their own methodologies and criteria to arrive at the ESG score of a company.  Domestic and foreign institutional investors then use these ESG scores along with their own fundamental analysis to identify high quality companies. Often, these investors and ESG ranking companies, as a rule, exclude companies in the business of tobacco, alcohol, weapons, gambling and such relatively less socially responsible activities.

Will LIC set a precedent for other IPO-bound companies?

This possibility cannot be ruled out given the exponential surge in ESG investing, not just in India, but also globally. A quick glance at the numbers tells the complete story. The Assets Under Management (AUM) of ESG-based funds has risen 4.7x in two years to over Rs. 12,300 crore from Rs. 2,630 crore in November 2019 (source: Business Standard). Data from Refinitiv Lipper data suggests that funds worth $649 billion flowed into ESG-focused funds worldwide through November 2021, up from inflows worth $542 billion and $285 billion into these funds in 2020 and 2019, respectively. ESG funds form 10% of worldwide fund assets. This metric stands at a miniscule fraction i.e. 0.3% of total AUM of Indian mutual funds.

Experts believe, over the medium term, ESG parameters will form an integral part of all lending and investment decisions. Regulators too have been taking several measures to push India Inc. to adopt superior ESG practices and align them with global standards. At the same time, regulators are framing guidelines to regulate ESG investing by mutual funds, ESG rating done by agencies and so on.

How can companies get favorable ESG score?

ESG scores are based on the actual ESG initiatives implemented by a company and the scale of impact of these initiatives. LIC, for instance, has been in business since 1956 and has a vast reach in terms of employees (over 1 lakh), agent network (10 lakh+) and physical branches. It has the scale to make a meaningful impact within its communities. Country’s largest life insurer’s community initiatives are aimed at developing the infrastructure and social sector (as per its FY21 annual report). Likewise, it has several people practices to provide them with training, development and other facilities. We await more details on the initiatives taken by LIC to reduce its environment footprint.

In short, it takes years for any entity to initiate its ESG strategy, integrate the same within its operations and make a real, sizeable impact on its stakeholders. Most large Indian companies (listed and unlisted) have a strong focus on the ‘S’ i.e. social aspect given the country’s inherent culture of ‘giving’ and working towards the greater good. With rising investor awareness and activism around governance, a lot of Indian companies have upped the standard of their corporate governance practices in recent times (though a lot needs to be done yet). On the environment front too, several large and mid-size companies, particularly in the manufacturing sector have clearly defined the roadmap to become net zero over the next 3-5 years. Large companies in service-oriented sectors (IT, BFSI, etc.) are also working proactively to reduce their environment footprint.


In its essence, ESG investing goes way beyond just a tick-marking exercise. There is no quick fix to get a favorable ESG score and attract capital from investors focused on socially responsible businesses. Amid rising scrutiny of investors, consumers, regulators and other key stakeholders; it is imperative for corporates to ‘walk the talk’ on ESG. Those who do so will create a sustainable, long-term economic moat; while the rest are most likely to fall on the sidelines. 

The author of this article is Sheetal Agarwal, AVP-Content and Communications, IIFL Group
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All about India's largest public issue: LIC IPO

  • India Infoline News Service
  • 02 May , 2022
  • 5:23 PM
India’s largest public issue LIC IPO is all set to launch on May 4 and the issue will close on May 9. The price band for the LIC IPO has been fixed at Rs902-949 per equity share. It will have an Rs60 per equity share discount for policyholders, and an Rs45 discount for employees and retail investors.

Retail investors will have a quota of 35 per cent of the IPO size, while 10 per cent of the IPO shares will be reserved for policyholders. Qualified institutional buyers (QIB) will have access to 50 per cent of the shares. The remaining five per cent is reserved for non-institutional buyers.

The LIC IPO is expected to garner up to Rs21,000 crore and its valuation stands at Rs6 lakh crore, which is 1.11 times the embedded value of around Rs5.40 lakh crore. This IPO is purely an offer for sale (OFS) where the government will carry its strategic sale of 3.5% in the insurer. The total number of shares offered in the IPO is 22.10 crore equity shares.

A bidder can invest in a minimum of one lot comprising 15 shares, and in multiples of 15 thereafter with a maximum cap of 14 lots.

Also, the government has proposed to keep 10% reserved for policyholders. However, policyholders who have their updated PAN link with their LIC policies and hold a Demat account are eligible for subscribing to the IPO. Apart from the government's strategic sale plan, the object of the IPO is also to achieve the benefits of listing the Equity Shares on the stock exchanges.

Post the IPO, the government's shareholding in LIC will be 96.5% from the current 100%.

Further, the 18 investment banks are competing to manage the LIC IPO and the last date to submit bids was Friday.

Domestic banks that have bid to manage the IPO include Kotak Mahindra Capital, Axis Capital, ICICI Securities, JM Financial, DAM Capital, Edelweiss, HDFC Bank, Yes Securities, SBI Capital and IIFL, while foreign investment banks in the running include Citi, Bank of America, HSBC, Goldman Sachs, JPMorgan, BNP Paribas, Nomura and CLSA, the people cited above said on condition of anonymity, the media reports added.

This government-owned insurer surely holds quite a significant leadership in the insurance industry. With more than six decades of experience, LIC is the largest insurer in India with a market share of 61.6% in terms of premium and a share of 61.4% e in terms of New Business Premium. Not just that, LIC holds dominance with 71.8% market share in terms of the number of individual policies issued, and an 88.8% market share in terms of the number of group policies issued for the nine months ended December 31, 2021.

LIC IPO likely to open on May 4

  • India Infoline News Service
  • 26 Apr , 2022
  • 12:02 PM
The much-awaited initial public offering (IPO) of the Life Insurance Corporation of India is likely to open for subscription from May 4, 2022. The issue is expected to close on May 9 and with this the anchor book for the LIC IPO is likely open on May 2.

LIC has cut the size of IPO from 5 per cent to 3.5 per cent due to the market condition. A proposal to reduce the size of LIC's IPO to 3.5 per cent from 5 per cent proposed in its draft red herring prospectus (DRHP) was tabled and approved at a board meeting held on Saturday.

The revised DRHP was submitted before the market regulator last week. The government, which wholly owns the insurance behemoth, plans to raise an amount of Rs21,000 crore by selling around 22 crore shares which is equivalent to a 3.5 percent stake.

As per the LIC Act, the government can reserve up to 10 per cent for the policyholders.

However, the government had initially wanted to list LIC in the last financial year that ended March 31 but had to delay the sale after the Russia-Ukraine war triggered a market rout.

LIC IPO has received Rs13,000 crore worth of investment commitments from anchor investors, more than twice the value of shares offered to such investors.

Source: Media reports


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