ESG funds in 10 points: Investment with a conscience
The ESG funds are increasingly becoming popular in the mutual fund industry in India. The ESG funds, which factor in the environment, social responsibility and corporate governance aspects of a company during investment, are sought after abroad. In India, their popularity is fairly new but is increasing rapidly.
If you have not heard of the ESG funds, then don’t worry. Take a look at our brief explainer on what are ESG and why you may consider investing in them:
ESG funds in 10 points
1) ESG stands for environment, social responsibility and corporate governance. The ESG funds use these parametres as filters while picking stocks for investment.
2) The key difference between the ESG funds and other funds is ‘conscience’. Usually, mutual funds hunt for stock with high potential earnings and assess their sustainability of revenue on the basis of management quality, cash flows, competition, etc.
3) The ESG funds’ assessment of a company’s sustainability includes best practices, like focus on environment conservation, gender equality and energy saving, etc.
4) Investors, especially large and institutional players such as pension funds, especially in the US and Europe, are now increasingly investing in companies that meet ESG standards.
5) In India, the concept is new, but several big lenders have rolled out their ESG funds. The first ESG fund was launched by the State Bank of India – SBI Magnum Equity ESG Fund.
6) Since then, several lenders have come up with their own ESG funds, such as ICICI Prudential ESG Fund, Axis ESG Equity Fund, Quantum India ESG Equity, etc.
7) India’s market regulator requires firms to disclose their ESG policies in a standardised format. Corporations have begun to take this a step further, voluntarily disclosing more than the minimum due to pressure from investors and growing institutional appetite for sustainable options.
8) The pro for ESG-focused investment is that this fund is a structured and better way of measuring the sustainability of companies by identifying risks hidden beneath a company’s business activities.
9) However, the con is that the ESG fund standards eliminate many big companies that indulge in the production of tobacco, liquor, sports gambling etc.
10) In the markets stricken by pandemic, an increasing number of investors is realising the worth of the ESG standards and their relevance in the long-term sustainability of the companies and their revenues.