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ESG Funds: ESG mutual funds offer investors an opportunity to contribute to society and the environment along with profits. There are funds that invest in companies that perform well on environmental, social and governance standards.
ESG Funds: In today’s era, investment is no longer just a means of increasing money. Now investors also see whether their money is being used for any good purpose or not and what impact it will have on the society and environment. This thinking has given a new direction in the world of investment, ESG Mutual Funds. ESG means Environmental, Social and Governance. These funds invest in companies that are environmentally responsible, work in the interest of society and have strong corporate governance, i.e. both profit and social responsibility.
What are ESG funds?
ESG mutual funds invest in companies that are assessed on 3 parameters-
- E: Environmental – How much harm does the company cause to the environment or what steps it takes to protect it.
- S: Social – How responsible is the company towards its employees, customers and society.
- G: Governance – How transparent is the company’s leadership, shareholders’ rights, board diversity and ethical business practices.
Popular ESG Funds in India
Many big AMCs have launched ESG funds. These include:
- Aditya Birla Sun Life ESG Integration Strategy Fund
- Invesco India ESG Integration Strategy Fund
- Kotak ESG Exclusionary Strategy Fund
- Mirae Asset Nifty 100 ESG Sector Leaders FoF
- Quantum ESG Best In Class Strategy Fund
- ICICI Prudential ESG Exclusionary Strategy Fund etc.
Big benefits of investing in ESG funds
- Match with personal values- Many investors consider their investments based on their thinking and ethics. If a company protects the environment, does good work for the society and runs its business transparently, then people feel satisfied by investing in it. ESG funds give you the opportunity to make responsible investments.
- Less risk, better stability- ESG companies often stay away from controversies, legal battles or regulatory violations. This means less reputational risk and less regulatory hassles. Such companies remain stable and perform better even in difficult times. This makes them a strong option for long term investment.
- Future ready companies- In view of technology, innovation, climate change and changing needs of consumers, companies that are paying attention to ESG are preparing themselves for the future. For example, companies that are reducing carbon emissions today will not be affected by harsh government policies tomorrow. This potentially improves their growth.
- Good governance means better returns- Many studies show that companies that have strong governance stay away from fraud and poor management. This keeps the investor’s money safe and the company grows permanently. A strong board, transparent finance and honest leadership can convert investments into good returns.
- Possibilities of better performance- Even though not all ESG funds perform equally, there are many funds which have given better returns than traditional funds. Companies with high ESG scores have more innovation and adjust faster to changing markets. This is the reason why many big global investors have started considering ESG criteria as important.
Should you invest?
If you want to support responsible companies and are looking for a long-term investment vehicle, then ESG funds can be a good option. However, not all ESG funds deliver equal performance, so it is important to do research before investing.
(Disclaimer: Mutual fund investment is subject to market risk. If you want to invest in it, then first consult a certified investment advisor. StuffUnknownwill not be responsible for any profit or loss of yours.)
