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Tata Capital > Blog > Wealth Services > The future of ESG Mutual Funds in India

Wealth Services

The future of ESG Mutual Funds in India

The future of ESG Mutual Funds in India

As per a report by World Bank, if there is even one per cent of the increase in long-term exposure to the particulate matter 2.5, there is an increase of 5.7 percentage of death by covid-19. Before this pandemic, the need for sustainable investing was established but the direct link has been felt during this pandemic. Investing in funds that invest in companies’ stocks that believe in sustainability has increased over the past. Investors are becoming more aware of ESG funds for sustainable investment purposes, but there is a long way ahead.

How ESG funds are helpful in sustainable investing and the development of society?

The environmental factors in ESG refer to company’s toxic gas emission control measures, , consumption of energies (renewable energies to be specific), water and waste management, and other factors which can impact environment positively. The Social factors include the well-being of the employees and the staff, overall society as a whole, and also local communities. Finally, the governance factors refer to the ethical standards followed by the firms, their management involvement, transparency of financial data and tax information, board members and their diversity, and others.

Thus, the need for ESG investing is not limited to environmental factors. While environmental factors are the first thing that made people realize the need for this. At present, the social factor is mostly pushing the investors and the governments to step-up investment in these funds.

The need for sustainable investing is the need of the hour because of the rising air pollution, depleting ozone layer, massive climatic change, and other reasons. There has been an increase of 88% of investment in ESG funds globally in which Europe itself made 80% of the contribution. The scenario in India is also quite positive as for the last five years, these funds are gaining huge momentum. However, this is just the initial stage and a long way ahead for making ESG funds a popular investment option. From 2019 to 2020, the inflows in the ESG funds in India has gone up from Rs. 2094 crores to Rs. 3686 crores. There has been a whopping 76% increase in the investment in ESG funds in this economy.

At present, there are different ESG funds and even the Nifty ESG 100 index has been continuously outperforming the Nifty 100 index for the last two years – 2020 and 2021. This depicts the change in the thought process of investors and the government of India.

Additional Read: ESG Investing: Things you need to know about it

Future of ESG in India

For having a better future, ESG investing is crucial. Investing in the companies which are making an effort to reduce their carbon footprint, taking care of the well-being of the employees and society has been identified as a way for sustainability. As you can see the numbers of investors and investments are quickly growing, this suggests that ESG funds are here to stay. With more companies becoming aware of the benefits of sustainability, fund houses will have more options to invest in.

SEBI has also come forward and provided a mandate to the top 1000 companies (listed) to come up with an annual report on Business responsibility and sustainability. This is voluntary for the financial year 2022 however, it is mandatory from FY 2023. This will eventually help the fund houses to evaluate the companies on different ESG metrics and select the best out of the lot.

Additional Read: Top 5 HNI investing trends in the current economic environment

Conclusion

Without investors companies cannot survive, thus if investors become aware of the benefit and need for sustainable investing, companies are bound to follow the same. However, investors want to see their investments growing and ESG investment can be referred to as one of the most lucrative investment options at present. Looking for investment in sustainable funds? Contact Tata Capital Wealth for all your investment needs.

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