An ESG fund is a fund that invests in any of the themes mentioned below or it could also be a combination of themes:

· Companies that contribute to protecting the environment (E)

· Companies that do not make products that disrupt the social balance (S)

· Companies that following standards of corporate governance (G)

ESG funds invest in stocks of companies that have no evidence of any harmful environmental impact or any social risks; are committed to corporate social responsibility (CSR) measures; and do not have harmful relationships with stakeholder and society at large. What about the Indian context? Let us look at some instances.

Companies engaged in the manufacture, marketing or promotion of tobacco, alcohol and gambling don’t fit into ESG category as they are socially unacceptable. What about companies engaged in the production of coal and fossil fuels? Again these are ruled out as they are not environment friendly and they destroy the Ozone Layer. At a more subjective level, companies that follow lower standards of disclosure and corporate governance practices are also ruled out from being ESG compliant. ESG investing is, therefore, more based on negative list approach and removes companies that do not fit into the ESG criteria and then invests in the remaining universe.