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All about ESG funds

As an investor, one should support companies which try to balance Environment, Social, and Governance (ESG) norms by investing in ESG mutual fund schemes. This blog will focus on carious ESG Funds and their performance.

Climate change is for real, and so many times, we are getting to see its adverse effects of it. For example, many times, unseasonal rains spoil ready to harvest crops, and often, during monsoons, it doesn't rain, leading to drought. Unseasonal rains and drought both can lead to food security problems for us. Hence, as investors, it is our responsibility to invest in companies that are conscious of sustainable growth and adhere to Environment, Social, and Governance (ESG) norms. This blog will focus on how as an investor, you can do responsible investing through ESG Funds. Also, we will see the performance of ESG funds in India

What is ESG investing?

The term ESG comprises Environment, Social, and Governance. Let us understand each of these terms.

  1. Environment
    The environment parameter looks at the impact of the company on the environment. It evaluates whether the company is protecting/preserving or deteriorating/depleting the environment. For example, a company uses energy as fuel. In this case, the environment parameter will consider whether the company is using clean energy such as solar, wind, hydropower or whether it is using polluting energy such as a coal-powered thermal plant.
  2. Social
    While the environment parameter deals with natural resources, the social parameter deals with human resources. The social parameter evaluates how a company deals with its people. It looks at whether the company’s human resources policy is fair, employee safety measures are in place, proper labour standards are being followed, all genders are treated equally, etc.
  3. Governance
    The Governance parameter looks at whether the company is doing business ethically, proper disclosures are made transparently from time to time, whistle-blower policy is in place, whether there are any instances of bribery or lobbying or political connections, etc.

ESG parameters

How to do ESG investing?

As an investor, if you want to do responsible investing, you can invest in various ESG mutual fund schemes with various ESG or other indices as their benchmark. Let us first understand the ESG indices and then get into the details of the ESG mutual fund schemes.

The NSE has launched three ESG indices which include:

  1. Nifty 100 ESG Index
  2. Nifty 100 Enhanced ESG Index, and 
  3. Nifty 100 ESG Sector Leaders

The Nifty 100 ESG Index is designed to reflect the performance of companies within the Nifty 100 Index based on the Environmental, Social, and Governance (ESG) score. The index was launched with a base value of 1,000.

The Nifty 100 ESG Index is designed to reflect the performance of companies within the Nifty 100 Index based on the Environmental, Social, and Governance (ESG) score. The index was launched with a base value of 1,000.

As seen in the above chart, as of 31st August 2021, the index is trading at a level of 3,500, thus multiplying investor wealth by 3.5 times in 10 years.

Performance of ESG mutual fund schemes

Various AMCs have launched ESG mutual fund schemes. Some of these include:

  1. SBI Magnum Equity ESG Fund
  2. Quantum India ESG Equity Fund
  3. Axis ESG Equity Fund
  4. ICICI Prudential ESG Fund
  5. Quant ESG Equity Fund
  6. Aditya Birla Sun Life ESG Fund
  7. Kotak ESG Opportunities Fund
  8. Invesco India ESG Equity Fund

The concept of ESG investing in India is relatively new and still at a nascent stage. Many of the above-mentioned mutual fund schemes have been launched recently and have not yet completed one year. Let us look at the performance of some ESG mutual fund schemes.

Scheme nameAUM (Rs. crores)3 months6 months1 year2 years
Quantum India ESG Equity Fund509.71%21.51%61.26%30.39%
SBI Magnum Equity ESG Fund4,25111.41%23.22%58.22%23.74%
Axis ESG Equity Fund2,13313.79%25.53%60.52%NA
Kotak ESG Opportunities Fund1,8168.13%21.14%NANA
Quant ESG Equity Fund2416.78%41.59%NANA
Nifty 100 ESG IndexNA13.46%26.72%65.05%NA

Note: The above data is as of 28th September 2021. The above returns are for direct plans with growth option. The funds have been ranked based on two-year returns. The returns up to 1 year are absolute. Two-year returns are CAGR.

As seen in the above table, only two funds have completed two years. But, the ESG investing trend is rising in India, with many investors choosing ESG investing. The AMCs also recognise the investor interest in ESG investing and are coming up with various ESG mutual fund schemes.

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You can partner with the Glide Invest App for your financial planning journey. Based on your risk profile, you will get the recommendations for the appropriate ESG mutual fund schemes and other mutual fund schemes. You will get advice on how to plan and systematically invest towards your financial goals

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  1. A personalised risk profile assessment
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  7. Hand holding you till your financial goals are achieved

To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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