Benefits Of Investing In ESG – Environmental, Social and Governance Funds
Investing in ESG Funds are not just for the conscious but for the clever as well.
Investments in growth funds are made simply to increase ones monetary assets. It is purely a commercial endeavour. At least it was so. Nowadays, as the world turns worldly-wise, even the deciding parameters to choose a particular growth fund is changing. Of late there has been a burgeoning trend in putting one’s money in ESG funds.
What is an ESG Fund?
ESG is an acronym for the environment, social, and governance funds. Companies are no longer trying to attract investors solely on the basis of the strength of their financial statements. Ethical practices of conducting a business are being focused on more strongly. So, when these companies who are truly compliant with sustainability practices release shares, they run it by the stringent tests that govern the ESG criteria. The criteria encompass the quality of a company’s management, its risk profile, its intrinsic culture, and several such other non-pecuniary benchmarks.
Hence, an ESG fund is an instrument of investment that has been thoroughly assessed and met with the underlying environmental, social and governance factors.
What are the benefits of investing in an ESG Fund?
According to a report brought out in 2019, convention funds were remarkably outperformed by their sustainable peers. Many investors are increasingly steering clear of funds of energy companies that are not clean. And if the overall investment trend observed since the last four years are anything to go by, environment, social and governance funds are on the uptick while non-ESG funds are stagnating.
How are the ESG Funds performing?
Interestingly, ESG was initially thought of as some kind of novelty or luxury aided by the bull market. But over the four years, it has simply exploded to double up its total AUM – asset under management value to $40.5 trillion this year.
How is it doing in India?
The current AUM of ESG fund in India is INR 45 billion. This fund type debuted as Nifty 100 ESG Index in 2011, and since then it has turned out a return of investment 10.6% which is 1.5 % more than provided by the traditional Nifty 100 Index.
Could it perform well, especially in India, even during this ongoing crisis?
During the ongoing crisis, when most of the non-sustainable funds are tottering, the alternative counterparts have exhibited a lower drawdown – a metric that measures the amount of downslide from its peak historical performance.
In the Indian context, Nifty 100 ESG Index recorded a drawdown of -27.1% while the Nifty 100 Index scaled at -29.1%.