UPASANA BHATTASALI (LLB, SEMESTER 5)
SWAGATALAXMI NALUI (LLB, SEMESTER 5)
AMITY LAW SCHOOL, KOLKATA.
AMITY UNIVERSITY, KOLKATA.
ABSTRACT
This paper deals with the current situation of the capital market investment and the corporate sustainability activities, focussing particularly on the Indian Market. The growth and significance of the Corporate Social Responsibility has raised various arguments on the focus on the sustainability and the environmental aspects and its relation with the capital market investors. The public sentiment and the social media have also become an integral source of inspiration for such investors. The investors and their connection with the sustainable development has become a major ground for the development of the corporate world. This paper delas with and broadly covers these aspects and subjects.
Keywords: Sustainable Development, Investment, Capital Market, Corporate Social Responsibility, Public Sentiment, Environmental and Social Development.
INTRODUCTION
Since after the pandemic has hit the world, the investors are looking forward to sustainable development in the investment market, however, the companies are barely paying any attention to this part. The performance and development of a company are no longer restricted only to financial development. It has extended its boundaries to several other factors pertaining to sustainable development like environmental protection, employee welfare and social welfare. The usual method of measuring such activities is the CSR performance of the company. China has increasingly been focussing on the CSR performance in the recent times and therefore, the research on the CSR performance has increased manifold. The improvement of the CSR disclosure mechanism and the growing attention to sustainable development have gradually reduced information asymmetry between investors and companies in the capital market. Thus, stock investors may become more sensitive to companies’ sustainable development performance than ever before.
The CSR disclosure and sustainable development has become crucial for engaging the investors while the investors get influenced by the social media and internet about the capital market and the companies. The companies make social and corporate commitments through these social, environmental and sustainable activities. Societal initiatives concentrate on corporate goals to “give back to the society” or be converted into “agents of positive social change.”
CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility is described as a holistic collection of policies, practices, and making programs that are incorporated into corporate activities, supply chains, and decision- processes within the enterprise, everywhere it does business, and provides accountability for current and past activity as well as potential impacts. Consumers’ social issues have been addressed by CSR campaigns, such as providing goods with socially beneficial qualities or producing products in a socially responsible way. The corporations are expected to engage in the improvement of their employees’ quality of life, as well as the well-being of employees’ families, local communities, and the overall society. CSR can attract investors and customers, as well as maintain a positive interaction with the Government. The contribution of corporate accountability theory to corporate sustainability is that it helps define the nature of the relationship between corporate managers and the rest of society. It also sets out the arguments as to why companies should report on their environmental, social, and economic performance, not just financial performance. In 1997, John Elkington of the UK consultancy, Sustainability, called this type of accounting on environmental, social, and economic performance as ‘triple bottom line’ reporting.
PUBLIC SENTIMENT AS A DRIVING FORCE IN INVESTMENT DECISIONS
Investors are finding themselves in a more complex environment as a result of changing public opinion. This phenomenon is especially noticeable in the social media environment, where opinions and perceptions have the power to quickly alter market dynamics. The interplay of these sentiments has profound implications not only for individual investment strategies but also for broader economic trends. Laws like the Securities and Exchange Board of India (SEBI) regulations, for example, aim to preserve market integrity in India, but they frequently fall behind the volatility caused by public opinion. The increasing ubiquity of socially responsible investing (SRI) suggests that investors are beginning to place more value on moral considerations than on financial gains. As a result, investors looking to reduce risk and take advantage of new opportunities now need to understand public opinion. Therefore, a sophisticated understanding of these public perceptions can be an invaluable tool for interpreting market movements and making wise investment choices.
Investors’ emotional environments have a big influence on market behavior and frequently profoundly alter investment strategies. Market trends can be influenced by public opinion because optimistic investors often put more money into stocks, which drives up prices. On the other hand, fear or uncertainty can cause market retreats, as demonstrated by emotional responses to political or economic news. This phenomenon is especially noticeable in erratic markets where psychological considerations take precedence over analytical frameworks. A collective positive or negative sentiment can cause dramatic changes in capital flows in India, where investment laws allow retail participation in the stock market, highlighting the relationship between social psychology and investment patterns. Moreover, the theory of liquidity preference asserts that attitudes towards currency and capital accessibility determine the inclination to invest, emphasizing the way in which affective reactions impact not only short-term choices but also more comprehensive economic regulations that control investment environments.
THE ROLE OF SOCIAL MEDIA IN SHAPING PUBLIC SENTIMENT
The widespread use of digital platforms has drastically changed how the public feels and expresses itself, especially when it comes to financial decisions. Social media is an interactive forum where people exchange views that have a significant impact on how people perceive businesses and the industries they operate in. For example, social media activity analysis shows that businesses using efficient communication techniques on sites like Twitter can positively influence user sentiments, increasing investor interest and brand loyalty.
Furthermore, legal frameworks that emphasize the value of openness and disclosure, like those set forth by the Securities and Exchange Board of India (SEBI), are consistent with the growing influence of social media on market sentiment. These mechanisms not only increase investor confidence but also strengthen the relationship between investment behaviours and emotional reactions. These dynamics demonstrate how important it is for investors trying to navigate the complexities of market fluctuations to understand public sentiment as it is shaped by social platforms.
The way that public opinion and regulatory frameworks interact affects market dynamics when it comes to investment decisions in India. Indian laws, such as the Companies Act of 2013 and the Securities and Exchange Board of India (SEBI) regulations, have been instrumental in promoting transparency and accountability, thus fostering investor confidence. Nevertheless, public opinion frequently fluctuates more than regulatory stability can control, especially in times of economic turbulence or financial crises. According to the results of recent studies, this sentiment may be strengthened and investment decisions may be influenced more successfully by a greater awareness of financial risks, which would be emphasized by more thorough public disclosures.
Moreover, the historical evolution of initial public offerings (IPOs) in India highlights the need for more inclusive policies that take into account the particular socio-economic context of the country by showing how regulatory changes, along with public perception, have led to fluctuations in market activity and valuation.
Investment decisions are becoming more and more impacted by the complex relationships between public sentiment and market perceptions and behaviors. It is essential for investors to comprehend the psychological aspects involved when navigating the ever-changing world of finance. To be more precise, behavioral finance shows that neither managers nor investors act in a totally rational manner. For example, collective emotional reactions and cognitive biases that influence decision-making processes are frequently connected to mispricing in the securities markets.
The Securities and Exchange Board of India (SEBI), highlighting the need for regulations that take into account the psychological factors influencing market volatility, has started to acknowledge the implications of investor behavior on market integrity within the framework of Indian laws. Consequently, admitting that public opinion influences investment decisions advances theoretical knowledge and is consistent with frameworks for regulation designed to keep markets stable and safeguard investors.
CASE STUDIES
1. RELIANCE INDUSTRIES GREEN INITIATIVES
Reliance Industries ,one of the India’s largest conglomerate, has been a target of environmental criticism, primarily due to its operations in oil, petrochemicals and gas. Historically, the company faced criticism for its heavy reliance on fossil fuels. However in recent years the company has made a concerted effort to pivot towards cleaner energy. Mukesh Ambani, the chairman of Reliance Industries announced a $10 billion investment in green energy in 2021. The company aims to become a net zero carbon emitter by 2035, focusing on solar energy, hydrogen fuel and renewable energy solutions
This decision was driven by growing public awareness of climate change and the pressure on large corporations to reduce their carbon footprints. Public sentiment around environment sustainability coupled with international trends towards decarbonisation, influenced Reliance’s strategy. The market responded favourably. Reliance’s stock price surged the following the announcement, as investors recognised that the company’s pivot towards clean energy aligned with public sentiment and would potentially mitigate long term regulatory risk and access new markets.
Investors are increasingly interested in companies that demonstrates a commitment to ESG (Environmental, Social, and Governance) principles. Reliance’s active CSR portfolio makes it an appealing option for SRIs Social Responsible Investors and global institutional investors who integrate ESG factors into their investment decisions. Reliance made significant investment in healthcare education through its CSR programs.The foundation’s ‘Health for All’ initiative exemplifies unwavering determination during challenging times. Integrated healthcare models and extensive delivery networks bring essential medical services to underserved communities. Mobile Medical Units, community health centres, and health camps ensure comprehensive healthcare, with over 580,000 consultations in FY 2022-23, reaching 138,000 individuals. Through initiatives like Drishti, the foundation addresses eye care needs, conducting 11,000 consultations and facilitating numerous cataract removal and corneal transplant procedures. The Nutrition Gardens initiative, impacting more than 20,500 families, reverses malnutrition trends, particularly benefiting women’s health.
CSR initiatives when aligned with business strategy, can significantly impact a company’s valuation by multiplying it’s valuation and way to access global market as well. Reputational risk is a major concern for investor and strong social sustainable projects helps to mitigate such risk by fostering positive perception, reducing the likelihood of stock price volatility due to publicity and public backlash.
2. ITC’S WATER STEWARDSHIP AND SOCIAL RESPONSIBILITY
ITC ltd. is one of India’s leading FMCG and agribusiness companies focuses on water conservation, an issue critical public concern in India, where water scarcity affects millions. The company’s water conservation, an issue of critical public concern in India, where water scarcity affects millions. The company’s “Water Positive” status, achieved through rainwater harvesting and sustainable agricultural practices has resonated strongly with both the public and investors.
ITCs afforestation projects aimed at creating sustaining forest ecosystems also reflects its commitment to corporate responsibilities. Public sentient around environmental issues has made ITC’s sustainability initiatives a key part of its brand identity. Investors he responded positively to ITCs consistent sustainability report. Water Stewardship Programme: The initiative aimed to ensure water security and drought-proof agri-catchments. Over 1.36 lakh acres were brought under watershed, with various water-harvesting structures built, contributing to over 48.9 million cubic meters of net water storage.
Investors rewarded ITC’s sustainability initiatives which increased confidence in company’s long term growth prospects. When a company like ITC is seen as addressing important social and environmental issues it earns public trust and Goodwill. This can lead to customer loyalty, better brand recognition and stronger market presence. Conversely if a company is perceived to be irresponsible such as causing environmental damage or engaging in unethical business practices public opinion can quickly turn negative leading to consumer boycotts, protest ultimately affecting the stock prices, stock market.
In an age where consumers are increasing concerned with sustainability and ethical business practices that align with these values ITC has secured the third position on CSR Journal’s list in 2023 projecting different schemes to develop the environment and the community as a whole. And thus, they have created a positive impact in the minds of the consumer who will turn into investors in future days.
3.VEDANTA’S STERLITE COPPER PLANT
The Sterlite Copper Plant, an unit of Vedanta Limited was one the India’s largest copper smelters producing a significant portion of the country’s copper needs. However, over the years local residents and activists raised serious concerns about the plant’s impact on the environment alleging that it was responsible for air pollution, water contamination, soil contamination and health problems. A protest was also led in the year 2018 due to worsening environmental impact which further led to legal challenges and Tamil Nadu Pollution Control Board cancelled the Plant’s renewal of consent to operate citing violations of environmental norms. This regulatory action caused severe reputational damage to Vedanta both locally and globally. Vedanta’s perceived failure to address the concerns of the local population and it’s association with Human Rights Violation solidified it’s negative impact. Vedanta’s stock price took a hit in the wake of the protest and the closure of the plant. Investor confidence was shaken as the public backlash raised concerns about the company’s regulatory risks, reputational damage and potential legal liabilities. The plant was responsible for producing approximately 40% of India’s copper output. The loss of production capacity led direct financial impact. The controversy remains a symbol of corporate environmental negligence in India and the memory of the protest continues to shape public and investors perception of the company.
CONCLUSION
Environmental, social, and governance factors are becoming central to investment decision worldwide including India. Investors increasingly consider ESG criteria as essential indicators of a company’s long term viability and risk management. The shift is largely driven by public sentiment which demands greater corporate accountability. Issues such as environmental stewardship, social equity and ethical governance.
In India, the rise in awareness about sustainability has also led the growth of impact investing and social responsible investment (SRI Funds). These investments vehicles prioritise companies with strong ESG credentials seeking not only financial returns but also positive social or environment outcomes. Public sentiments expressed through activism, media and consumer behaviour plays a pivotal role in determining which companies attract such investments.
The examples of Reliance industries, ITCs and Vedanta illustrates the significant impact that public opinion can have on corporate valuation and investment decisions. As sustainability becomes more engrained in the fabric of corporate strategies, public sentiments will continue to be a key determinant of how companies are perceived and valued in the Indian markets. Integrating public concerns into their sustainability frameworks is not only an ethical responsibility but also a strategic imperative for securing long term investor confidence.
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