InvestorQ : Do I have the choice of investing in ESG Funds in India and are there are any advantages buying such funds in the Indian market?
manisha Kolvenkar made post

Do I have the choice of investing in ESG Funds in India and are there are any advantages buying such funds in the Indian market?

Answer
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11 months ago


Globally, ESG funds are quite popular there are ethical investors and ethical funds that avoid exposure to certain types of stocks in their portfolio. For example, a staunch follower of the Shariah Law does not invest in liquor and gambling companies and Sikhs don’t invest in tobacco companies. New funds globally specifically reject any company that is contributing to global warming in a significant way. At this point of time, there are specific such funds available in India too.

· Kotak was the first AMC to sign the UN principles for responsible investment initiative in April 2018.

· The alternate asset arm of Avendus launched India’s first ESG fund—Avendus India ESG Fund. It uses a proprietary model to identify ESG compliant stocks.

· SBI Mutual Fund converted its Magnum Equity Fund into Magnum Equity ESG Fund. Now, the fund’s investment process involves exclusion of certain sectors.

Let us address the more important question; do these ESG funds actually outperform or one can be indifferent to that? Globally, it has been observed that such ESG compliant companies do tend to outperform over the longer period. Let us take just the G component. Companies with better governance standards do a lot better than companies with weak governance. We saw that in companies like IndusInd Bank, Yes Bank, DHFL, Cox & Kings, IL&FS etc. Indian markets are now punishing non-ESG compliant funds quite hard and that bodes well for the future.

It may be too early to evaluate the performance of ESG funds versus the Nifty and the Sensex and we may have to wait for a few more years to get comparable and verifiable data. However, in India there are two challenges. Firstly, the choice in a market like India becomes quite limited if the parameters are applied strictly. Secondly, most of the ESG companies in India are already quoting at rich valuations. That leaves you with little choice to invest.