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Top 5 ESG Funds In India You Can Consider Investing In

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The Beginning of ESG Investing In India

While ESG investing entered the boardrooms of corporates globally in 2004, there is no specific date that marks the beginning of ESG investing in India. Scores of developments and policy reforms took place over the last decade to guide ESG investing in India.

We have some major developments mentioned below

2008 – CRISIL, Standard and Poor, KLD Research & Analytics launched the S&P ESG India Index. It was the first investible index of Indian enterprises whose business strategies and performance demonstrate a high level of commitment to meeting ESG standards.

2009 – The Ministry of Corporate Affairs (MCA) issued Corporate Social Guidelines. It recommended that all businesses must develop CSR policy centered around six core elements – care for stakeholders, proper functioning, respect for workers’ rights and welfare, respect for human rights, respect for the environment, and activities for social and inclusive development.

2012 – The Securities Exchange Board of India (SEBI) issued a circular making publishing an annual business responsibility report for the largest 100 listed companies mandatory

2014 – The government passed a landmark law mandating companies of a particular scale and profitability to spend 2% of their average profits of preceding years on CSR activities.

2015 – SEBI extended the 2% CSR requirement to the 500 companies in SEBI’s Listing Obligations and Disclosure Requirements Regulations.

2016 – SEBI issued its green bond guidelines, making India the second country after China to provide national-level guidelines.

A Rapidly Developing Emerging Concept

ESG investing is commonplace around the world. But it is still an evolving concept in the country. Despite its decade-old history, India does not show significant growth in ESG investing.

Today, around 88% of the Indian public corporates have put ESG initiatives in place. However, ESG teams and employees lack confidence that their companies can deliver against their promised goals. Only 50% believe their firm performs very effectively against environmental metrics. 39% feel the same way about governance. And only 37% rate social progress as satisfactory.

Despite this, ESG investing is growing in India. In FY21, inflows in the Indian ESG funds grew 76% to Rs. 3,986cr from Rs. 2,490cr in FY20. But most of it was foreign money.

Underpenetrated Theme

India has fewer funds focused on ESG investing when compared to other top 10 economies. Interestingly, Taiwan has more funds focused on Environmental, Social, and Governance metrics than India.

According to Refinitiv Financial Solutions data, India has 23 funds whereas the U.S. and the U.K have over 500 ESG funds each. Developed Asian economies like Japan and China have 182 and 119 ESG funds respectively.

ESG-Refinitiv Data

The reason for such under-penetration is simple. Indian investors are not familiar with the concept of sustainable investing. They are reluctant to put cash into ESG funds as most funds in the sector are new and do not have a track record of outperformance.

Moreover, some institutional investors and distribution partners often have policies that do not allow them to invest in funds less than three or five years in the market.

But in our view, this under-penetration could be an opportunity for most investors to start investing in this theme.

Would you consider investing in ESG Funds?

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Read more:
ESG Investing Introduction
Rise of ESG around the world

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