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ESG Funds – A Sustainable Trend

ESG (Environmental, Social and Governance) funds are those funds whose asset allocation mostly includes shares and bonds of companies that are evaluated based on the factors of environmental, social and governance.

The ESG companies are assessed stringently on their sustainability before they are given the tag. The ESG parameters reflect on an organization’s culture, risk involved and management, among other things. To assess a company based on environmental, social and governance criteria, a broad range of behaviours are looked at.

For environmental criteria the parameters looked at include a company’s energy use, waste, pollution, natural resource conservation, treatment of animals, compliance with government environment regulations.

For social criteria the parameters include the company’s relationships with various stakeholders – safe and healthy working conditions for the employees; contributions towards upliftment and development of the surrounding areas and communities; all the suppliers associated with them share similar values as the company.

For governance criteria the parameters include transparent disclosures about their transactions; timely filings and disclosures; ethical practices; the company does not use political relations to obtain unduly favourable treatment; don’t engage in illegal practices.

In India, people are becoming more interested in sustainability due to several parameters. Factors such as regulatory requirements have played a significant factor in pushing the companies to be ESG compliant. Apart from the regulatory requirements, another factor influencing the companies to be ESG compliant is the interest of foreign investors. Foreign investors are becoming more interested in those companies that are sustainable and ESG compliant.

Below is a list of some of the ESG funds introduced recently:

  • Aditya Birla Sun Life ESG Fund

  • Axis ESG Fund

  • SBI Magnum Equity ESG Fund

  • Quantum India ESG Equity Fund

  • ICICI Prudential ESG Fund

  • Mirae Asset ESG Sector Leaders ETF

Going forward, the ESG compliance will go a long way in ensuring the survival of a company for years to come as it will help to boost the company’s credibility and reputation, and thus, attract more investors.

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