ESG, which stands for Environmental, Social, and Governance is the newest investing methodology investors from all tiers are betting big on these days. Although ESG investing has become a topic for discussion now, you will be surprised to know that its principles aren’t new. And these are not even difficult to understand.
ESG investing is seen as a way of investing “sustainably” – where investments are made considering the environment, human well-being, as well as the economy. Based on the growing assumption that environmental and social factors affect the financial performance of organizations.
Hundreds of years ago, religious and ethical beliefs influenced investment decisions. Muslims established investments that complied with Sharia law, which includes prohibitions on weapons, lending, etc.
The rising importance of corporate social responsibility (CSR) and social sustainability is leading to increased investor awareness about ethical participation in the market. In 2006, the United Nations released a set of guidelines called Principles of Responsible Investments (PRI) for the incorporation of ESG factors into business policy and strategy.
Many investors believe PRI may have marked the entry of ESG into mainstream investing today. PRI has over 2000 signatories and is widely considered the official point of reference for all things ESG.
ESG Investing BOOM
Recent times have seen a remarkable expansion of ESG investing in India as well as global economies. The COVID-19 pandemic brought more attention to the interdependencies between social, environmental, and economic factors for the growth of a business.
When coronavirus first appeared in late 2019, market disruptions and uncertainties caused many investors to turn to ESG funds. In the first three months of 2020, investors globally invested $54.6 Billion in these funds. According to ADEC Innovations, $30.7 trillion currently sits in sustainable investment funds worldwide, and it is predicted this could grow to ~$50 trillion in the next two decades.
In India, mutual fund houses are pushing hard for it. Among the popular ESG funds, SBI Magnum Equity ESG Fund with an asset base of Rs. 3,518 crore is the oldest ESG fund in India. Look at the inflows in ESG funds to map the rise in ESG investing in the country. Inflows in ESG funds in India leapfrogged 76% to Rs. 3,686 crore in FY21 from Rs. 2,490 crore in FY20.
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Read more: Top 20 ESG Funds Around The World