The Ultimate Guide to ESG

You may have heard this term come up in conversations about sustainable investment. But, what does it mean? And are investors applying it to capitalise on growth opportunities? We will discuss everything but first, let’s look at the meaning

What is ESG?

ESG is a form of sustainable investing and it stands for Environment, Social And Governance.

Let’s take a look at what each word stands for –

Environment refers to conservation of natural resources. It promotes the idea of companies opting for natural harvesting and using natural means to develop their products.

Social stands for the idea of corporate social responsibility. It highlights the importance of corporates giving back to society in order to protect human capital.

Governance refers to ethical management of corporate activities. This includes following rules and regulations for accounting, taxation and overall management.

To conclude, ESG revolves around the ideology that the corporate world will make responsible environmental, social and ethical choices, only if they are pressured by large investors. We can look at it as a set of standards set in place by socially conscious investors to screen potential investments.

Is India ready for ESG?

In recent years, young investors around the world have shown interest on the positive impact of ESG factors on returns. Various surveys indicate that millennial investors consider ESG as a top priority in assessing investment opportunities. Let’s look at the U.S. for example – According to the most recent report from US SIF Foundation, “investors held $11.6 trillion in assets chosen according to ESG criteria at the beginning of 2018, up from $8.1 trillion just two years earlier”. Now let’s look at some global statistics. According to Morningstar, “Globally, about $2.96 trillion has been invested in funds that are managed with an ESG focus.”

But what about India?

India is no different. In FY21, 10 exclusive ESG-focused funds were launched. Not just that, the Nifty 100 ESG Index has outperformed its parent index Nifty 100 across various 1,3 and year timeframes. To capitalise on this freshly growing theme, the Indian mutual fund industry has rolled out new funds for investors based on ESG investing.

These are currently the top three ESG funds in India — SBI Magnum Equity ESG, Quantum India ESG Equity and Axis ESG.

There are many benefits of ESG investing, one of them being sustainable choices. The whole world is struggling due to the pandemic and there’s no doubt that the impacts of this will be long- term. Hence, it’s time we make conscious and sustainable investments today.