ESG investing is gaining its attractiveness; where the Indian market lies in creating ESG funds?
Environmental, Social and Governance (ESG) investing refers to a category of investment where we concern not only about financial returns but also its impacts on the sustainable development of society and environment. In case of ESG investing we often expect positive returns in terms of pecuniary as we as non-pecuniary returns on the society and environment. In this article, you will be able to know the condition of ESG investing and available ESG funds in India.
When we talk about the sustainable investment we could find four types of investment i.e. socially responsible investing (SRI), ESG, values-based investing and impact investing. The ESG investment also comes under the umbrella of socially responsible investing where we assess the ethical impact and sustainability of a company in terms of its waste management, resource depletion, corporate social responsibility towards its employee and society and its governance structure.
We often invest in a company’s stock by considering its financial returns. But in recent years ESG investing has gained its attractiveness as millennial are investing in such companies which have a good social reputation and are environmentally responsible. Currently, ESG investing consists of $20 trillion of total assets under management worldwide.
There are 350 ESG funds and exchange-traded funds (ETFs) in the USA which consists of all firms and companies who are environmentally and socially responsible and excludes polluting companies. The outbreak of the COVID-19 pandemic has resulted in a large investment in ESG funds in European and USA markets.
India is under the initial stage of development of ESG investing. There are very few mutual funds that started and launched ESG funds i.e. Quantum India ESG Equity Fund Direct-Growth, Axis ESG Equity Fund Direct-Growth, SBI Magnum Equity ESG Fund Direct Plan-Growth, SBI Magnum Equity ESG Fund Direct Plan – Dividend Reinvestment.
The actual problem in the development of ESG funds in India lies in the fact that Indian companies are suffering in getting a good score in ESG standards as most of the financial and other companies have various governance issues. Another problem is our extra concerns on environmental issues while taking any decision about establishing and expanding businesses.
Author: Alok Aditya Department of Economic Studies and Policy Central University of South Bihar