ESG Mutual Fund: Some of these mutual fund companies are liking the ESG theme. This year some companies have launched in the ESG fund market. ESG is actually an acronym for Environmental, Social and Corporate Governance. It can be understood that investing in ESG means creating a portfolio of stocks of companies that meet high standards of environmental, social and corporate governance. Experts believe that companies whose management adopts these principles have the ability to increase earnings in the future and at the same time, they also reduce financial risk. SBI Magnum Equity ESG, Axis ESG and Quantum India ESG Equity Fund are some such schemes.
3 categories of ESG Research
Research and consulting companies engaged in ESG Research collect information based on various ESG Factors, then analyze them and then provide their ratings or recommendations. ESG Research can be divided into 3 categories.
- Climate change, carbon emissions, carbon footprint, the impact of changes in climate change norms.
- Natural resources: Raw material (including its source), water management, land use.
- Pollution: Toxic emission, waste management, packaging etc.
- Opportunities: Emphasis on renewable energy (e.g. solar energy, wind energy, etc.), green building.
- Human Resources: Labor Issues and Management, Occupational Health, Safety Standards, Suppliers’ Labor Standards.
- Products: Product quality, product security, financial products security, data privacy and security, environmentally friendly products.
- Stakeholder: Relationship with suppliers and customers
Ownership and management control, protection of minority stakeholders, the composition of board directors,
Accounting Standards and Practice, Financial and Non-Financial Disclosures, Corporate Vibeare
Why these companies can perform well
For products or businesses that require regulatory approval, companies with a good ESG track record can easily obtain approval. Because of this, they will be able to bring products to the market more quickly. Such companies get an opportunity to improve customer relationship and have good branding. They benefit from cost-efficiency and excellent operating margins. At the same time, productivity is also excellent. Such companies are able to attract and retain talent.
Best return on investment
Companies that invest in sustainable assets (such as plants, equipment, products, technology, etc.) are able to use their capital more effectively in the long term. They can avoid investments that are unlikely to yield returns due to environmental issues and regulatory changes. In such a situation, the companies who adopt ESG, their hopes of sustainable growth increase in their earnings.
Who should invest money
Vaibhav Shah, head (product), Mirae Asset Investment Managers India Private Limited, says ESG funds in India are in a very early phase, but the future looks better. If investors have a long-term view, they can invest in such funds. These funds are less volatile than other equity categories in difficult market times. However, investors should first assess their personal risk profile and financial goals first before investing money and seek the help of financial advisors before investing in these funds.
(Source: Morningstar, June 2020)