Would you invest in a company that hardly follows its own set standard managerial codes, is not sensitive towards the needs of employees, society, stakeholders and the environment?
Definitely not and no one likes to invest in such companies. If you look closely, such companies tend to fail in the long run and are wealth destructors.
When it comes to investing, beyond the financial aspects like profit & loss and QoQ & YoY performances of the company, you should always look for non-financial parameters as well.
The non-financial parameters here means the ESG (environmental, social and governance) criteria, which are also a determining factor for the company’s future viability and such companies possess less risk to the environment and society.
Investing based on the ESG parameters is a new concept in India, but has been there for a quite long time. If we trace the history, the concept of ESG was first popularised by US-based Milton Friedman in 1970 and is well followed globally.
ESG Investing in India?
As mentioned earlier, ESG stands for Environmental, Social and Governance. This is also known as sustainable investing. It is a type of investing, in which an investor seeks positive returns from investing in businesses that engage its resources to create a long-lasting impact on the society, environment and the business, apart from profiting.
It’s not just a fancy word, but the need of the hour to promote such business that adheres to these standards to create a beautiful tomorrow.
The ESG aspect is the qualitative outlook of the business which is not reflected in the financial statements. For example, it is difficult to gauge the impact of climate change financially and the importance of business ethics.
Businesses which follows these standards have not only done well in the past and has established goodwill in the market and are less impacted by the disruptions in the market
ESG Investing in India
Nowadays in India, most of the well-established companies adhere to the ESG concept for running businesses and investors also look at whether the company they are investing in adheres those standards.
However, not all investors can distinguish the company, or it gets tough to keep a track on such companies that adhere to the ESG concept.
Therefore, to make it easy for investors, many mutual fund houses in the recent past has launched ESG funds in India.
The primary objective of such funds- the growth of capital through active management of investments in a diversified basket of companies that adheres to the ESG criteria. Such funds fall under the category of multi-cap and have fared better compared to the large-cap mutual funds.
ESG Mutual Funds
Currently, there are eight ESG mutual funds offered by different fund houses. Following are the funds available and returns of the respective funds.
|Fund||Inception||1 yr Return %||3 yr Return %||5 yr Return %|
|SBI Magnum Equity ESG||January 2013||19.35||12.09||15.51|
|Quantum India ESG Equity Fund||July 2019||29.04||-||-|
|Axis ESG Equity Fund||Feb 2020||-||-||-|
|ICICI Prudential ESG Fund||Oct 2020||-||-||-|
|Mirae Asset ESG Sector Leaders Fund of Fund||Nov 2020||-||-||-|
|Quant ESG Equity Fund||Nov 2020||-||-||-|
|Kotak ESG Opportunities Fund||Dec 2020||-||-||-|
|ABSL Equity Fund||Dec 2020||-||-||-|
The concept of ESG investing in India is still new in India but is catching up fast. The launch of 7 new funds in the year 2020 is a clear indication of the trend.
Therefore, before investing, verify whether the fund follows the principles of ESG, the portfolio composition of the fund and fund manager.