In recent years, consumers have become environmentally conscious and the mutual fund segment also reflects this trend. Interest in sustainable investing has skyrocketed in India, with ESG (environmental, social and governance) funds gaining popularity.
So what are ESG funds, how do they work and is it something you should invest in?
Let's find out. Understanding ESG Mutual Funds
ESG mutual funds are like any other mutual fund, except they invest in companies that prioritize environmental protection, social responsibility, and good governance practices. By investing in these funds, you support green, socially conscious and well-managed companies, aiming to achieve positive impact along with financial returns.
For example, Tata Consultancy Services (TCS) focuses on energy efficiency and community well-being. Infosys is known for its green building and sustainability initiatives. Wipro invests in renewable energy and social programs. These are often included in ESG mutual fund portfolios. Types of ESG mutual funds
Here are some of the types of ESG mutual funds commonly available:
• Environmental funds: These funds focus on companies with strong environmental practices, such as renewable energy or waste management. • Social funds: These funds invest in companies that prioritize social issues, such as employee well-being, community development or diversity .
• Governance funds: These funds target companies with strong corporate governance, transparent management and ethical practices.
• Integrated ESG Funds: These funds combine environmental, social and governance criteria to create a balanced portfolio.• ESG Thematic Funds: These funds focus on specific sustainability themes. For example, clean energy, water conservation, sustainable agriculture, etc.
You may also be interested to know that the Securities and Exchange Board of India (SEBI) has introduced a separate sub-category for ESG investments under the thematic category of equity schemes. Now, any scheme under the ESG category can be launched with one of the following strategies:
• Exclusion: Avoid investments in companies that do not meet certain ESG criteria. • Integration: Incorporate ESG factors into the investment analysis and decision-making process.
• Positive and best-in-class selection: select companies that perform better on ESG criteria compared to their peers.
• Impact Investing: Investing with the intention of generating measurable social and environmental impact along with a financial return.• Sustainable Goals: Focusing on investments that contribute to sustainable development goals.
• Transition or transition-related investments: support companies that are transitioning towards more sustainable practices.
ESG Funds: How and Where Do They Invest? ESG funds carefully select companies based on environmental, social and governance practices.
For example, the SBI Magnum Equity ESG Fund has invested in companies like Tata Consultancy Services (TCS), Infosys and HDFC Bank in its portfolio.
These funds carefully evaluate potential investments through rigorous screening processes to ensure they meet specific ESG criteria. By choosing these investments, ESG funds seek to earn financial returns and promote ethical and sustainable business practices. Why ESG investing is gaining momentum in India
As mentioned above, investing in ESG funds is quickly gaining traction, and rightly so. According to reports, 10 ESG schemes of various fund houses manage assets worth Rs 10,946 crore.
So what is driving this momentum, you ask? The Securities and Exchange Board of India (SEBI) has mandated that the top 1,000 listed companies disclose their ESG efforts. With this measure, there is greater transparency and accountability among companies. Furthermore, this transparency allows you to learn about and invest in companies that have 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. Furthermore, it is an attractive investment for you as an investor as it offers stable and ethical investment opportunities. Additionally, companies that prioritize ESG factors tend to have more resilient business models, making them attractive options for your portfolio.
Benefits of investing in ESG mutual fundsInvesting in ESG mutual funds offers multiple benefits.
• First, ESG funds align their investments with their 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 that companies are open and honest. This automatically reduces the risk of investing in poorly managed or environmentally harmful companies.• By investing in ESG funds, you contribute to positive social and environmental impacts while potentially enjoying consistent returns. That's what you would call beneficial for your wallet and the planet.
How to invest in an ESG mutual fund
To invest in an ESG mutual fund, start by researching and selecting a fund that matches your values and financial goals. Use a trusted investment platform or invest directly through the fund house's website. Like any other mutual fund, you can choose to invest through a lump sum investment or set up a Systematic Investment Plan (SIP) for regular contributions. Be sure to periodically review your investment to ensure it aligns with your goals. Challenges and Considerations in ESG Investing
ESG mutual funds come with certain challenges and risks that you should be aware of before investing in them.
• First, ESG reporting is still evolving. So while one fund might prioritize carbon emissions, another might focus on labor practices. This variation in the approaches of different funds can make it difficult to compare funds effectively.• Sometimes investing ethically can mean not investing in high-performing companies that do not meet ESG standards.
• There is often a fear that companies will not meet their commitments. If you invest in ESG funds, you may need to keep an eye on the companies included in your portfolio. This is mainly to ensure that they meet their sustainability commitments.
In the end, remember that by including ESG mutual funds in your portfolio, you could be contributing to a sustainable future. However, the rewards of this investment will depend on whether you prioritize sustainability alone or also focus on portfolio returns. A smart move would be to carefully check the portfolio composition of an ESG fund before depositing your funds in it. (Disclaimer: The above press release is provided by HT Syndication and will not take any editorial responsibility for this content.)
So what are ESG funds, how do they work and is it something you should invest in?
Let's find out. Understanding ESG Mutual Funds
ESG mutual funds are like any other mutual fund, except they invest in companies that prioritize environmental protection, social responsibility, and good governance practices. By investing in these funds, you support green, socially conscious and well-managed companies, aiming to achieve positive impact along with financial returns.
For example, Tata Consultancy Services (TCS) focuses on energy efficiency and community well-being. Infosys is known for its green building and sustainability initiatives. Wipro invests in renewable energy and social programs. These are often included in ESG mutual fund portfolios. Types of ESG mutual funds
Here are some of the types of ESG mutual funds commonly available:
• Environmental funds: These funds focus on companies with strong environmental practices, such as renewable energy or waste management. • Social funds: These funds invest in companies that prioritize social issues, such as employee well-being, community development or diversity .
• Governance funds: These funds target companies with strong corporate governance, transparent management and ethical practices.
• Integrated ESG Funds: These funds combine environmental, social and governance criteria to create a balanced portfolio.• ESG Thematic Funds: These funds focus on specific sustainability themes. For example, clean energy, water conservation, sustainable agriculture, etc.
You may also be interested to know that the Securities and Exchange Board of India (SEBI) has introduced a separate sub-category for ESG investments under the thematic category of equity schemes. Now, any scheme under the ESG category can be launched with one of the following strategies:
• Exclusion: Avoid investments in companies that do not meet certain ESG criteria. • Integration: Incorporate ESG factors into the investment analysis and decision-making process.
• Positive and best-in-class selection: select companies that perform better on ESG criteria compared to their peers.
• Impact Investing: Investing with the intention of generating measurable social and environmental impact along with a financial return.• Sustainable Goals: Focusing on investments that contribute to sustainable development goals.
• Transition or transition-related investments: support companies that are transitioning towards more sustainable practices.
ESG Funds: How and Where Do They Invest? ESG funds carefully select companies based on environmental, social and governance practices.
For example, the SBI Magnum Equity ESG Fund has invested in companies like Tata Consultancy Services (TCS), Infosys and HDFC Bank in its portfolio.
These funds carefully evaluate potential investments through rigorous screening processes to ensure they meet specific ESG criteria. By choosing these investments, ESG funds seek to earn financial returns and promote ethical and sustainable business practices. Why ESG investing is gaining momentum in India
As mentioned above, investing in ESG funds is quickly gaining traction, and rightly so. According to reports, 10 ESG schemes of various fund houses manage assets worth Rs 10,946 crore.
So what is driving this momentum, you ask? The Securities and Exchange Board of India (SEBI) has mandated that the top 1,000 listed companies disclose their ESG efforts. With this measure, there is greater transparency and accountability among companies. Furthermore, this transparency allows you to learn about and invest in companies that have 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. Furthermore, it is an attractive investment for you as an investor as it offers stable and ethical investment opportunities. Additionally, companies that prioritize ESG factors tend to have more resilient business models, making them attractive options for your portfolio.
Benefits of investing in ESG mutual fundsInvesting in ESG mutual funds offers multiple benefits.
• First, ESG funds align their investments with their 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 that companies are open and honest. This automatically reduces the risk of investing in poorly managed or environmentally harmful companies.• By investing in ESG funds, you contribute to positive social and environmental impacts while potentially enjoying consistent returns. That's what you would call beneficial for your wallet and the planet.
How to invest in an ESG mutual fund
To invest in an ESG mutual fund, start by researching and selecting a fund that matches your values and financial goals. Use a trusted investment platform or invest directly through the fund house's website. Like any other mutual fund, you can choose to invest through a lump sum investment or set up a Systematic Investment Plan (SIP) for regular contributions. Be sure to periodically review your investment to ensure it aligns with your goals. Challenges and Considerations in ESG Investing
ESG mutual funds come with certain challenges and risks that you should be aware of before investing in them.
• First, ESG reporting is still evolving. So while one fund might prioritize carbon emissions, another might focus on labor practices. This variation in the approaches of different funds can make it difficult to compare funds effectively.• Sometimes investing ethically can mean not investing in high-performing companies that do not meet ESG standards.
• There is often a fear that companies will not meet their commitments. If you invest in ESG funds, you may need to keep an eye on the companies included in your portfolio. This is mainly to ensure that they meet their sustainability commitments.
In the end, remember that by including ESG mutual funds in your portfolio, you could be contributing to a sustainable future. However, the rewards of this investment will depend on whether you prioritize sustainability alone or also focus on portfolio returns. A smart move would be to carefully check the portfolio composition of an ESG fund before depositing your funds in it. (Disclaimer: The above press release is provided by HT Syndication and will not take any editorial responsibility for this content.)
