Mutual Funds ‘Sahi’ hai aur ‘ESG’ bhi!

Title: Mutual Funds ‘Sahi’ hai aur ‘ESG’ bhi!
Alternative Title: Are ESG Funds the new future?

Back in the 1990s, if any individual would have even thought of investing for decades ahead, she/he would have never even heard of ESG (Environmental, Social and Corporate Governance) schemes.

Popular in most developed countries, investing is ESG Funds are considered to be ‘sustainable’ investing and are basically schemes that invest into companies that rank high on environment-friendly, ethical and good governance practices.

An important question which is quite pertinent is that ‘Why Should I care about the E+S+G indicators if I’m just looking to make profit / quick bucks through any other alternative investments?’

The answer seems direct as well, that my sole investment funds the companies. If any individual hypothetically, invests in tobacco or petroleum and other fuels, then she/he is in turn giving money to companies and megalodons which are making future seem gloomy. So, should we linger to do that? I guess, not.

Shifting to ESG Schemes and Mutual Funds appears as the ‘new normal’ as it has a huge potential in the upcoming years. Since most of the Indian Youth are now conscious about different factors while making investments. And as a trend observed in the developed countries with pre-existing EDG Schemes, companies with good ESG scores are a viable option to invest as it tends to reduce environmental and social risks and inclines to have sturdier returns and cash flows, and lesser borrowing costs.

Socially Responsible Investing (SRI), is what I pursue to be a predecessor to the current endorsements of sustainable investment. SRI is branded by a negative-screening method, where there exists certain companies/industries that the investor evades based on her/his choices, and the rest are her/his return-gaining assets.

With the same motive, The Nifty 100 ESG Index has been formed within the Nifty 100 to measure the ESG Scores where Infosys Ltd. Tops the constituents by weightage with a 11.23%, followed by RIL at 10.20% and HDFC Bank Ltd at 10.00% respectively.
Companies that are engaged in the business of tobacco, alcohol, controversial weapons and gambling operations shall be excluded in the Nifty 100 for obvious reasons.

If the NIFTY 100 ESG Index gains importance and proves itself to be a major factor for investors to look at, it will have immense potential to lead to a sustainable future and will also force a lot of companies to follow better corporate governance, higher ethical standards, and environment-friendly measures along with a tinge of social responsibility.

Any individual in India can invest in the currently existing four Indian ESG schemes managing close to Rs 5900 Crores (SBI Magnum Equity ESG with a total market value/AUM of 2773 crores, Axis ESG Equity Fund with total market value of 1680 crores, and Quantum India ESG Equity with a mere 20 crores and the latest to have been added is the ICICI Prudential ESG Fund with a total market value of 1415 crores, on 09th October 2020).

In conclusion, whether the future seems bright and sustainable with the advent of such ESG Schemes, that only time and data for the following years can tell. But I do believe that ESG Schemes have nailed one thing – Lead the initiative to at least bring environmental, social and governmental awareness to investments.