Sustainability is one of the biggest concerns today. Several investors want to invest in companies encouraging sustainability, recognizing its importance for a better future.
ESG funds are a type of thematic mutual fund that focuses on investing in companies encouraging sustainable & social development. There is a lot to know about ESG funds, read on!
What Are ESG Funds?
Here, ESG stands for Environment, Social & Governance. ESG funds strictly invest in companies that adhere to ESG criteria.
These funds analyse each company’s environmental impact, social responsibility and governance practices when making investment decisions.
In other words, these funds focus on companies that prioritize sustainable and responsible practices.
For example, if a chemical company produces carbon emissions and pollution, ESG funds do not show interest to invest in it.
Available ESG Funds In India
There is a very limited number of ESG funds in India. Below is a list.
- SBI Magnum Equity ESG Fund- Launched in 2013
- Quantum India ESG Equity Fund- Launched in 2019
- Axis ESG Equity Fund- Launched In 2020
- Quant ESG Equity Fund- Launched In 2020
- Kotak ESG Opportunities ESG Fund- Launched In 2020
- Mirae Asset Nifty 100 ESG Sector Leaders FoF- Launched In 2020
- Aditya Birla Sun Life ESG Fund- Launched In 2020
- ICICI Prudential ESG Fund- Launched In 2020
- Invesco India ESG Equity Fund- Launched In 2021
How Does ESG Investing Work?
ESG investing works on similar principles of mutual fund investing. The only thing that makes it unique is the specific selection criteria for companies to invest in. This practice helps in curating an ESG-based thematic portfolio.
As told earlier, ESG funds finely analyse each company in terms of positive environmental impact, social responsibility and governance practices.
They curate an ESG-based portfolio of companies & pool money from investors to invest in these funds. This enables investors to contribute to a portfolio that aligns with their sustainability and responsible investing goals.
ESG funds hold much importance in today’s investment landscape. They are not only useful for sustainability but they also create a positive impact on society & other companies.
A. Sustainability: By directing capital towards environmentally responsible and socially conscious businesses, ESG funds contribute to the overall sustainability and well-being of our planet and society.
B. Positive Impact: By investing in companies that address environmental and social challenges, ESG funds support initiatives that promote positive change and contribute to a more sustainable future.
C. Inspiration: The growing popularity of ESG funds will inspire other companies and businesses to embrace ESG criteria. This motivation may arise from the desire to attract customers & investors but it is beneficial for all.
Features Of ESG Funds
What are the features of ESG funds? Are you thinking the same? Well, below are discussed some of the features of ESG funds.
A. ESG integration: Obviously, ESG integration is the main feature of these funds. This ensures that investors are directing their money not to negatively impact the environment, and society & promoting ethical practices.
B. Transparency: Various ESG funds prioritize transparency by providing investors with information on their ESG criteria, investment processes and the ESG performance of their portfolio companies.
C. Performance & Returns: Companies with strong ESG practices are considered more resilient and better equipped to manage risks, potentially contributing to long-term investment performance.
ESG funds are good for a better future for all. However, these funds have some disadvantages discussed below.
A. Lack of Accurate Data: In some cases, companies may lack robust reporting or transparency regarding their ESG practices making it challenging for ESG funds to make fully informed investment decisions.
B. Limited Investment Opportunities: There is a very low number of ESG funds available in the market compared to other traditional funds. The growing popularity of ESG funds will help us to witness new opportunities soon.
C. Difficult Analysis of Funds: Most ESG funds in India have been launched 2-3 years ago making it difficult to analyse performance and track record. On top of that, having a limited number of ESG funds, investors may find it difficult to conduct an effective comparison.
How To Invest In ESG Funds
Thanks to online investing platforms that made investing easy. Investing in ESG funds is only a few steps away.
- Register with any reputed online investment platform
- Open an account & complete KYC
- Select An ESG Fund
- Choose the mode of investment i.e. lumpsum or SIP Investment
- Make the payment
- Review the performance periodically
What is the Full Form OF ESG funds?
ESG funds stand for Environment, Social & Governance funds.
What is ESG Score?
ESG scores are numerical ratings or scores assigned to companies or investment funds based on their environmental, social, and governance performance.