Although big in global investments, ESG funds — which imbibe environment, social responsibility and corporate governance in their investing process— are witnessing growing interest in the Indian mutual fund industry too. There are currently four ESG schemes managing close to Rs 6,000 crore (three of these launched in the last 16 months), while at least five more fund houses have lined up new schemes.
What is ESG criteria?
Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how eco-friendly the company’s operations and practices are. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Why ESG?
Good deeds are rewarded sooner than later. This applies in business and investing as well. If companies follow good practices, it will eventually translate to higher profits by way of brand building and customer patronage.
One of the best examples of a socially responsible company is that of the Tata Group. Though the instances of Tata Group is endless, the recent example is their initiative to provide rooms at Taj Hotel for healthcare staff members who are at the frontlines of the Covid-19 pandemic. Also, their decision to serve food to medical staff at their work place moved the society and several others to prefer Tata products over other products. Over the long run, all of these will result in better profits and more importantly brand loyalty.
Any company which follows ESG over the long term is sure to emerge as a sustainable company. That is the reason ESG investing is also known as sustainable investing.
What is the future of ESG in India?
One of the challenges that Corporate India has to contend with and will continue in the future (which is great for investors) is the fact that regulations are going to get stricter and adherence to them is going to get tougher.
If the company adheres to the highest standards of E, S, and G then there is a three-fold advantage of investing in those companies:
- They do not need to incur any additional costs and are already on a safer side if the Regulator tightens norms.
- An ESG compliant company can take advantage of the situation to increase market share while other non-compliant companies struggle due to violating strict regulatory protocol.
- Being ESG compliant enhances the reputation of the company and the youth of our country is growingly sensitive about it.
How to invest in ESG companies?
For a layman, it is very difficult to keep track of these three factors of all the companies listed in India. One can overcome these limitations by investing in an ESG Fund offered by mutual fund houses.
To know more and invest in ESG funds, call/whatsap us at +91 91531 91531 or write it to us at crm@ontrustcap.com