For our inaugural newsletter, we had the privilege of interacting with the Impact and ESG Head of Aavishkaar Capital, Sowmya Suryanarayanan. Aavishkaar Capital has been a pioneering force in impact investing in India since its inception in 2001. Founded by Vineet Rai, it makes investments in businesses that not only generate financial returns but also deliver outsized social and environmental impact. With an aim to solve complex social problems, Aavishkaar specializes in early-stage and growth-stage investments across diverse sectors such as sustainable agriculture, financial inclusion, essential services, and climate change, among others. Aavishkaar’s commitment to measurable impact and transparent reporting sets it apart as one of the country’s first impact-based funds, contributing significantly to the development of the impact investing landscape in India.
In this one-on-one interview, Sowmya delves into the guiding philosophy of Aavishkaar’s investments, sharing the strategic nuances and implications. Her role aligns with Aavishkaar’s commitment to impact investments, integrating financial success with environmental and social responsibility.
Driven by an inherent passion for problem-solving, Sowmya possesses a diverse academic and professional background, including a Bachelor’s and Master’s in economics, and additional certifications in CSR from ISB and in Social Finance from Oxford University. Her journey as a changemaker began in high school, where she tutored local kids in English, a commitment that continued through her Master’s while collaborating with NGOs. Over a decade of hands-on work expanded her horizons, culminating in her current role as the Director of Impact and ESG at Aavishkaar.
Reflecting on her journey, she reminisces, “Uncertain paths taken with great conviction leads to great discoveries and this is how I started my journey in the Sustainability and Impact Investing space over a decade back.” Her conviction stems from her extensive on-ground experience, interacting with various stakeholders and reading a diverse range of books, and most recently, Indira Nooyi’s book, ‘My Life in Full: Work, Family, and Our Future,’ serving as her daily inspiration.
In response to her daily motivation, Sowmya shared, “Every day brings a new challenge that pushes me to think outside the box.” In her role of the Impact & ESG custodian at Aavishkaar, she tackles real-life problems directly affecting people, necessitating quick thinking and decisive actions. Her responsibilities extend to upholding the fund’s pioneering impact position, keenly observed by the industry.
She also significantly contributed in Aavishkaar’s Fund VI, achieving the 2x Challenge Flagship status given to specific funds committed to both improving gender diversity in the investment industry. Her work on the Aavishkaar Group Impact Report 2020 received special appreciation from the Finance Minister of India and she went on to win the ‘Sustainability Impact Leader Award’ from the Governor of Maharashtra, India in 2023.
"Companies based out of urban locations that are well-versed in ESG issues with established policies, may struggle with effective implementation."
In Sowmya’s role, the management of stakeholder expectations takes precedence over the tasks at hand. Given that each stakeholder may perceive impact and ESG differently, a key aspect lies in managing temperaments and adeptly resolving issues to move the sustainability agenda ahead.
“The responsiveness of companies to recommendations related to environmental and social aspects varies widely. Our diverse portfolio spans across rural and urban areas, presenting an intriguing paradox. In rural settings, where awareness of sustainability and impact may be limited, companies often take proactive initiatives in the ESG realm despite potential unfamiliarity with the terminology or lack of formal policies. On the other hand, companies based out of urban locations that are well- versed in ESG issues with established policies, may struggle with effective implementation”, said Sowmya on the portfolio’s response to suggested action plans.
The fundamental challenge originates from the corporate emphasis on Return on Investment (ROI), viewing Environmental, Social, and Governance (ESG) initiatives as potential hindrances due to associated additional costs. This prioritization of financial returns at the expense of ESG considerations significantly hampers the widespread adoption of ESG-forward practices within numerous VC funds.
Aavishkaar Capital launched its USD 250 million ESG First Fund, aimed at bolstering mid-market businesses globally. This Fund strategically focuses on enhancing the ESG practices of enterprises, aligning them with the increasing consumer demand for environmentally sustainable and socially responsible goods and services. Recognizing the global shifts in ESG aspects driven by climate change, social inclusion, and the pandemic, the ESG First Fund addresses the need for portfolio companies’ businesses to integrate ESG standards.
With this Fund, Sowmya and her team focus on enhancing the impact-driven nature of their portfolios by integrating ESG considerations into various aspects of the portfolio companies’ operations, including the supply chain. Sowmya emphasised, “When formulating the fund strategy, we were contemplating how ESG can be truly a value creation strategy for our investee companies.”
Tailored for SMEs, this fund is exclusively structured credit strategy, diverging from the equity structure of their other funds. The sectors and enterprises targeted by this fund reflect Aavishkaar’s evolving focus on sustainable practices, both on supply and demand side of the value chains.
Aavishkaar’s expertise has evolved through firsthand experience through conducting over 60 due diligences for portfolio companies. In the initial stages, engaging with companies that lacked established policies provided insights into sector-specific compliances and risks and shaped a more informed approach. She summarises, “The initial experiences served as the foundation for continuous growth. We developed an in-house ESG Scoring tool for measuring ESG preparedness, value creation areas, and tracking progress in portfolio companies.” Aavishkaar’s dedication to refine its approach and tools underscored its commitment to fostering sustainable and impactful investments in a changing landscape.