ESG funds, prioritising ethical, environmentally-conscious investments, see rapid growth even as SEBI unveils new guidelines mandating top 1K companies to disclose their ESG efforts
ESG funds prioritise investing in environmentally friendly, socially conscious, and well-managed companies. They aim for a positive impact alongside financial returns. For example, Tata Consultancy Services (TCS) focuses on energy efficiency and community welfare. Infosys is known for its sustainability initiatives and green buildings. Wipro invests in renewable energy and social programmes. These are often included in ESG mutual fund portfolios.
Securities and Exchange Board of India (SEBI) has introduced a separate sub-category for ESG investments within the thematic category of equity schemes. Now, any scheme under the ESG category can be launched with one of the following strategies: Exclusion, which involves avoiding investments in companies that do not meet specific ESG criteria.
Integration, which incorporates ESG factors into the investment analysis and decision-making process. Best-in-Class & Positive Screening, which entails selecting companies that perform better on ESG criteria compared to their peers. Impact investing is done with the purpose of generating quantifiable social and environmental impact alongside a financial return. Sustainable Objectives investing focuses on investments that contribute to sustainable development goals and Transition or Transition-Related Investments, which support companies that are transitioning towards more sustainable practices.
ESG funds meticulously select companies based on their environmental, social, and governance practices. These funds conduct thorough evaluations of potential investments through strict screening processes to ensure they meet specific ESG criteria. The aim of investing in these companies is to financial returns while also promoting sustainable and ethical business practices.
ESG fund investing is rapidly gaining traction for good reasons. According to reports, funds with ESG mandates across various fund houses are managing assets worth ₹10,946 crore. The Securities and Exchange Board of India (SEBI) has mandated that the top 1,000 listed companies disclose their ESG efforts. This move aims to improve transparency and accountability among companies. Furthermore, this transparency enables investors to make informed decisions and invest in companies with well-defined sustainability practices.
On the other hand, many Indian companies are now committing to sustainability and responsible business practices. This commitment often translates into better long-term performance. Also, it is an attractive investment for you as an investor as such investment offers stable and ethical investment opportunities. Additionally, companies that prioritise ESG factors tend to have more resilient business models, making them appealing choices for your portfolio.
Investing in ESG mutual funds offers multiple benefits.
• Firstly, ESG funds align your investments with your values, supporting companies committed to sustainability, social responsibility, and ethical governance. This ethical approach can also lead to better long-term financial returns, as companies with strong ESG practices often perform well and are more resilient.
• Additionally, ESG funds ensure companies are open and honest. This automatically lowers the risk of investing in poorly managed or environmentally harmful businesses.
• By investing in ESG funds, you contribute to positive social and environmental impacts while potentially enjoying steady returns. Now, that’s what you would call a win-win for your portfolio and the planet.