Inflows of sustainable or ESG (environmental, social, and governance) funds surge 76%.
- The COVID-19-led crisis has only accelerated the demand for sustainable investing.
- Driven by increased investor interest in environmental, social and governance issues, sustainable funds in India attracted Rs 3,686 crore in the 2020-21.
ESG (environmental, social, and governance) funds
- It's similar to a mutual fund.
- Its investments are sometimes referred to as "sustainable" or "socially responsible" investments.
- A mutual fund often looks for a good stock of a firm with potential earnings, management quality, cash flows, the industry it operates in, and competition, among other things.
- The ESG fund shortlists companies that score well on environmental, social responsibility and corporate governance before looking at financial criteria when choosing a company to invest in.
- The key difference between two funds is that the ESG fund concentrates on companies that have environmentally friendly policies, ethical business practices, and a reputation of treating employees well.
- The Securities and Exchange Board of India regulates the fund (SEBI).
ESG funds scenario in India
- Such funds offer exposure to themes such as renewable energy, low carbon, green transport and environmental protection.
- India is increasingly acknowledging the need to effectively manage the ESG factors as means to mitigate business risks as well as attract long-term capital.
- Investors have started embracing the fact that they don't have to sacrifice returns by opting for high ESG stocks.
- Indian mutual fund industry witnessed increased interest in ESG Funds
- New ESG funds launched are: Aditya Birla Sun Life ESG, ICICI Prudential ESG, Kotak ESG Opportunities, Quant ESG Equity Fund, Invesco India ESG Equity and Mirae Asset ESG Sector Leaders ETF.
- SBI Magnum Equity ESG Fund with an asset base of Rs 3,518 crore is the oldest ESG Fund in India.
- ESG funds together have an asset base of nearly Rs 9,900 crore at the end of March 2021.
- Companies will be required to strengthen governance and ethical practices, as well as act with greater environmental and social responsibility, as ESG funds gather momentum in India.
- Companies that do not adjust their business strategies or become more environmentally sustainable could have the revenue and profitability suffer in the long term as the policy framework changes.
- Companies with good ESG scores tick most of the checkboxes for investing, tend to mitigate environmental and social risks and tend to have stronger cash flows, lower borrowing costs and durable returns.
- Modern investors are re-evaluating traditional approaches and looking at the impact their investment has on the planet.