TO ANALYSE THE ESG INVESTING SCENARIO IN
INDIA
A project submitted to
University of Mumbai for partial completion of the degree of
Bachelor of Management Studies
Under the Faculty of Commerce
By
Aditi Rane
Under the Guidance of
Dr. Sharyn Bangera
Usha Pravin Gandhi College of Arts, Science & Commerce
Bhaktivedanta Swami Marg, JVPD Scheme, Vile Parle (West),
Mumbai400056.
March 2023
TO ANALYSE THE ESG INVESTING SCENARIO IN
INDIA
A project submitted to
University of Mumbai for partial completion of the degree of
Bachelor of Management Studies
Under the Faculty of Commerce
By
Aditi Rane
Under the Guidance of
Dr. Sharyn Bangera
Usha Pravin Gandhi College of Arts, Science & Commerce
Bhaktivedanta Swami Marg, JVPD Scheme, Vile Parle (West),
Mumbai400056.
March 2023
ACKNOWLEDGEMENT
I take this opportunity to thank Usha Pravin Gandhi College of Arts, Science &
Commerce and the University of Mumbai for giving me the chance to undertake
this project.
I would like to thank our Principal, Dr. Anju Kapoor for providing the facilities
necessary for the completion of this project.
I take this opportunity to thank our Coordinator for their moral support and
guidance.
I would also like to express my sincere gratitude towards my project guide Dr.
Sharyn Bangera whose guidance and care made the project successful.
I would also like to thank our college library for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my parents and peers who supported
me throughout the project.
DECLARATION
I the undersigned Mr. Aditi Rane, a student of T.Y.B.M.S. Semester VI (2022-23)
hereby declare that the work embodied in this project work titled "TO ANALYSE
THE ESG INVESTING SCENARIO IN INDIA” forms my own contribution to the
research work carried out under the guidance of Dr. Sharyn Bangera is a result of my
own research work and has not been previously submitted for any other
Degree/Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, hereby further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.
Aditi Rane
Name and Signature of the learner
Certified by
Dr. Sharyn Bangera
Name and signature of the Guiding Teacher
CERTIFICATE
This is to certify that Mr. Aditi Rane has worked and duly completed her Project
Work for the Bachelor of Management Studies under the Faculty of Commerce in the
subject of Finance and her project is entitled "To analyse the ESG investing scenario
in India” under my supervision.
I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of any
University.
It is her own work and facts reported by her personal findings and investigations.
Dr. Sharyn Bangera
Name and Signature of Guiding Teacher
Signature of Principal
Examiner
Date of submission:
Signature of External
INDEX
Chapter No.
1
Title of the Chapter
Introduction
1.1. Definition of ESG
1.2. History of ESG
1.3. Characteristics of ESG
1.4. ESG India
1.5. ESG Mutual Funds India
1.6. Challenges of ESG Mutual Funds in India
1.7. Indian ESG mutual funds' interaction with
companies on ESG issues
1.8. Regulatory environment surrounding ESG
mutual funds
1.9. Regulations and guidelines from SEBI and
other regulatory bodies
1.10.
Industry standards and best practices
from organizations
1.11.
Development in ESG Mutual Funds
1.12.
Impact On Financial Performance
1.13.
Policy reports and analysis from think
tanks and industry associations such as the
Confederation of Indian Industry (CII)
1.14.
Trends in ESG investing
1.15.
Types of ESG Mutual funds in India
1.16.
Criteria for ESG Mutual funds in
1.17.
India Industry reports and surveys
from KPMG
1.18.
Axis ESG Equity Fund
1.19.
Aditya Birla Sun Life ESG Fund
1.20.
How to invest in ESG mutual funds in
India
Page No.
2
Research Methodology
2.1. Problem Statement
2.2. Objectives
2.3. Scope of Study
2.4. Research Method
2.5. Limitations Of The Study
3
Literature Review
3.1. Review of Book
3.2. Review of Journal
3.3. Conclusion
Chapter Bibliography
4
Data Analysis, Interpretation and Presentation
5
Conclusions and Suggestions
 Bibliography
CHAPTER 1
INTRODUCTION
Investors' awareness of the possible effects of their investments on the environment
and society has led to an increase in environmental, social, and governance (ESG)
investing in recent years. When making investment decisions, this kind of investing
takes governance, social, and environmental aspects into account.
Climate change, greenhouse gas emissions, resource depletion, waste management,
and pollution are a few examples of environmental factors. Workplace policies,
human rights, diversity, and interpersonal relationships are examples of social
elements. Executive salary, board diversity, accountability, and openness are a few
examples of governance variables.
ESG investing first gained popularity in the early 2000s and is now a widely used
investment strategy, with many sizable asset managers offering ESG funds. This
pattern has been influenced by a number of things.
First, the effects of investors' investments on the environment and society are causing
them growing concern. They are searching for investing solutions as a result that
reflect their values and views. Due to this, there is now more demand for investments
that consider ESG factors.
The possibility that ESG variables can materially affect financial performance is
supported by expanding research, as well. According to studies, businesses with great
ESG performance have a higher chance of long-term financial success. Due of this,
investors who are seeking for ways to earn returns while simultaneously having a
good impact are becoming more interested in ESG investing.
Finally, ESG investing is receiving more regulatory support. Globally, governments
and regulators are enacting laws and policies to encourage sustainable finance. For
instance, the Securities and Exchange Board of India (SEBI) has legislated that all
mutual funds in India must have a minimum ratio to ESG investments. The European
Union has also created a taxonomy to define sustainable investments.
Socially responsible investing (SRI), which has been established since the 1960s, is
where ESG investing got its start. SRI funds were particularly concerned with staying
away from investments in businesses that carried out contentious activities, such
producing tobacco or weapons. The idea of ESG investing, on the other hand,
broadened the scope of SRI to include businesses that were having a good effect on
the environment and society.
Investors are becoming more aware of how ESG-performing businesses are better
positioned to handle risks and seize opportunities. Companies that place a high
priority on environmental sustainability, for instance, may be better prepared to
handle upcoming climate change regulations or to create new products that satisfy
shifting consumer demands for sustainable goods.
Additionally, it has been demonstrated that ESG investing benefits the environment
and society. Investors can promote virtuous behaviour and promote favourable social
and environmental outcomes by allocating capital to businesses that exhibit high ESG
performance. This may entail making investments in businesses that place a high
priority on environmental sustainability, diversity, and employee safety.
In conclusion, ESG investing is an investment strategy that takes into account
environmental, social, and governance concerns while making investment decisions.
Due to rising investor demand, mounting proof of the impact of ESG elements on
financial performance, and expanding governmental support for sustainable finance, it
has become more and more popular in recent years. Socially responsible investing is
the foundation of ESG investing, which has grown to include businesses that promote
good environmental, social, and governance outcomes.
1.1 Definition of ESG
Environmental, social, and governance (ESG) considerations are the three main
criteria that are frequently used to assess the sustainability and societal impact of
an investment.
A company's impact on the environment, including its use of resources, pollution,
and greenhouse gas emissions, is referred to as an environmental factor. Businesses
that place a high priority on sustainability and environmental responsibility may be
more likely to lower their carbon footprint, create novel sustainable goods, and
efficiently manage their natural resources.
A company's social characteristics include its treatment of employees, involvement
in the community, and customer interactions. Businesses that place a high value on
social responsibility may be more likely to support diverse and inclusive
workplaces, emphasize worker safety, and participate in charitable endeavours that
benefit the local community.
Governance factors include a company's board structure, CEO salaries, and
transparency in management processes. Strong risk management procedures, a
diverse and independent board, and open financial reporting may all be
characteristics of businesses that place a high priority on good governance.
ESG investing is based on the idea that organizations that give attention to ESG
elements have a higher chance of long-term sustainability and success. Investors
that give ESG considerations priority when making investment decisions aim to
invest in businesses that share their values and are more likely to have a beneficial
influence on the social and environmental spheres.
ESG investing has grown significantly in popularity in recent years as more and
more investors look to match their investments with their values. ESG mutual funds,
ETFs, and separate accounts are just a few of the ESG investment vehicles that have
emerged as a result of the growing popularity of ESG investing.
Sustainable investment can present some difficulties, though. The absence
of standardized ESG data and indicators is one of the main problems ESG
investors face.
Investors may find it challenging to compare the ESG performance of various
companies and to make wise investment decisions in the absence of standardized
ESG data.
Making false claims about the performance of ESG factors, or "green washing,"
is another issue that ESG investors must deal with. Investors should carefully
assess corporate ESG policies and look for independent confirmation of ESG
claims in order to avoid green washing.
Despite these difficulties, ESG investing is probably going to gain more and
more traction in the years to come as investors strive to more closely match their
investments with their values and to encourage positive social and environmental
benefits. Investors may successfully traverse the changing environment of
sustainable investing and contribute to a more sustainable future by understanding
the fundamental concepts and difficulties of ESG investing.
1.2 History of ESG
The socially responsible investment (SRI) movement that started in the 1960s and
1970s is where ESG investing got its start. SRI investors aimed to invest in
businesses that shared their social and environmental ideals, frequently steering
clear of investments in businesses engaged in the production of cigarettes,
gambling, or weapons.
The idea of ethical investing gained traction in the 1980s and 1990s as investors
started to pay greater attention to the social and environmental effects of their
investments. Due to this, the first specifically designed SRI funds—typically small,
specialized investments targeted at ethical investors—emerged.
Investors' attitudes about ESG investing changed in the early 2000s as they realized
there might be financial gains to be had from backing businesses those priorities
ESG concerns. This sparked the development of ESG integration, which involves
including ESG elements in the choice-making process for investments.
ESG investing has been more popular in recent years as investors look to match
their investments with their values and support ethical and sustainable businesses.
A multitude of causes, including as legal pressure, changing public views, and the
rising understanding of the financial advantages of investing in businesses that
emphasize ESG considerations, have contributed to the emergence of ESG
investment. ESG investment is now a crucial topic of attention for both investors
and asset managers. ESG issues are now widely seen as crucial elements of a
company's long-term sustainability and financial performance, and investors are
increasingly looking to invest in businesses that give them priority.
A number of significant innovations, such as the creation of ESG ratings and the
rise of impact investing, have accompanied the development of ESG investing.
Investors can evaluate a company's ESG performance using ESG ratings, and
impact investing is making investments in businesses and initiatives that seek to
have a beneficial social or environmental impact.
There are still issues to be resolved in the area of ESG investing, despite the
substantial advancements made. The absence of uniformity and openness in ESG
data and reporting is one of the main issues that ESG investors must deal with. Due
to this, investors may find it challenging to compare ESG performance across
industries and companies, which may undermine their confidence in ESG ratings.
Risk of "green washing," which occurs when businesses make erroneous or
deceptive claims about their ESG performance, is another issue that ESG investors
must deal with. This emphasizes how important it is to conduct thorough ESG
analysis and due diligence to make sure that investments are actually in line with
ESG principles. In conclusion, the history of ESG investment has been
distinguished by a gradual evolution from early socially responsible investing to the
more complex ESG integration techniques of today. Notwithstanding the difficulties
ESG investors face, there is hope for the future of ESG investing given the growing
understanding of its financial advantages and the rising public desire for sustainable
and ethical investments.
1.3 Characteristics of ESG
Focus on Long-Term Value Creation
Risk management
Engagement
Integration of ESG Factors into Investment Analysis
Focus on Impact
Importance of Data and Transparency
Diverse Investment Opportunities
1. Focus on Long-Term Value Creation
A focus on long-term value development is among the main features of ESG
investment. ESG investors strive to invest in businesses that value ESG
considerations and are therefore more likely to be long-term sustainable. ESG
investors are of the opinion that they can get higher long-term profits by investing
in sustainable companies as opposed to those that do not place a high priority on
ESG characteristics.
2. Risk management
As it can assist investors in identifying and avoiding companies that are subject
to material ESG risks, ESG investing is frequently employed as a risk management
strategy. Businesses that put an emphasis on ESG aspects are frequently better able
to manage ESG risks and are therefore more likely to be able to handle issues
arising from ESG.
3. Engagement
ESG investors frequently interact with the businesses in their holdings to motivate
them to enhance their ESG performance. This involvement can take many different
shapes, such as a conversation with the company's management, proxy voting, and
public lobbying. ESG investors can influence positive change and enhance ESG
performance by interacting with businesses.
4. Integration of ESG Factors into Investment Analysis
ESG investing is incorporating ESG considerations into the choice-making process
for investments. Incorporating ESG variables into conventional financial research to
evaluate a company's long-term sustainability and financial performance is one way
to do this. Another is to utilize ESG ratings and analysis to find companies that
prioritize ESG factors.
5. Focus on Impact
Some ESG investors concentrate on impact investing, which is making investments
in businesses and initiatives with the intention of having a favourable social or
environmental impact. Impact investing can involve a variety of tactics, from
backing businesses that
Give marginalized areas access to essential goods and services to investing in
renewable energy initiatives.
6. Importance of Data and Transparency
Data and openness are essential for ESG investors when evaluating a company's
ESG performance. This can comprise information on, among other things, a
company's board diversity, labour practices, and carbon emissions. Transparency
in ESG reporting is also valued by ESG investors since it enables them to make
knowledgeable investment choices and hold businesses responsible for their ESG
performance.
7. Diverse Investment Opportunities
Equities, fixed income, and alternative investments like private equity and real
assets are just a few of the investment alternatives offered by ESG investing. Due
to this diversity, investors can create well-diversified portfolios that take ESG
factors into account across various asset classes.
An emphasis on long-term value creation, risk management, involvement, and
the incorporation of ESG elements into investment analysis are the features of
ESG investing, to sum up. Transparency, data, and a wide variety of investment
choices are also important to ESG investors. ESG investors think that by including
these traits into their investment strategy, they may improve long-term returns
while simultaneously encouraging sustainable and ethical investing methods.
1.4 ESG India
ESG Rating in India
ESG has received a lot of attention in India lately, as more and more investors
look to match their investments with their values and encourage positive social
and environmental effects.
India,
which
faces
serious environmental
issues
such air and
water
pollution, deforestation, and climate change, places a premium on environmental
aspects. Businesses that place a high priority on environmental responsibility may
be more likely to invest in renewable energy, produce sustainable goods, and lower
their carbon footprint.
In India, where the social environment is complicated and there are problems
with poverty, gender inequality, and human rights, social aspects are also
significant. Businesses that place a high priority on social responsibility may
be more likely to encourage diverse and inclusive workplaces, participate in
charitable endeavours, and foster community growth.
With India's history of poor corporate governance, including the well-known
Satyam crisis, governance factors are especially important in this country.
Businesses that place a high priority on good governance may be more likely to
have diverse and independent boards, open financial reporting, and effective risk
management procedures.
A variety of ESG investment vehicles, including ESG mutual funds and ETFs, have
been developed as a result of the increasing popularity of ESG investing in India.
These investment vehicles are designed to expose investors to businesses that place
a high value on ESG factors while also fostering positive social and environmental
effects.
ESG investing does face certain difficulties in India, though. The absence of
standardized ESG data and indicators is one of the main issues that ESG investors
must deal with. Investors may find it challenging to compare the ESG performance
of various companies and to make wise investment decisions in the absence of
standardized ESG data.
The lack of knowledge and comprehension of ESG principles among investors
and businesses presents another difficulty for ESG investors in India. ESG
investors must become knowledgeable about this issue and communicate with
businesses about their ESG policies in order to overcome it.
In spite of these obstacles, ESG investing is anticipated to gain more ground in
India over the next several years as more and more investors look to match their
investments with their values and encourage beneficial social and environmental
effects. Investors may successfully traverse the developing sustainable investing
landscape and contribute to a more sustainable future by grasping the fundamental
concepts and difficulties of ESG investing in India.
ESG investors in India face a number of difficulties in addition to several potential.
India has a sizable and rising middle class, as well as a sizable and growing
population. Companies who place a high priority on ESG considerations will have
a lot of opportunities since they are more likely to be able to take advantage of this
expanding market and to gain from a solid reputation.
In India, ESG investing is a crucial idea with a lot of potential to produce
beneficial social and environmental effects. Investors may successfully navigate the
changing environment of sustainable investing in India and help to create a more
sustainable future by grasping the fundamental concepts and difficulties of ESG
investment.
1.5 ESG Mutual Funds India
India is hardly an exception to the enormous worldwide momentum that ESG
investing has experienced. ESG mutual funds have developed as one of the main
methods that investors can participate in companies that meet ESG criteria in
India, as investors want to more closely match their investments with their beliefs
and to encourage beneficial social and environmental consequences.
ESG mutual funds are investments in businesses that adhere to specific
environmental, social, and governance (ESG) standards. These standards may
take into account things like a company's carbon emissions, hiring procedures,
and board composition. ESG mutual funds in India are created to enable
investors to invest in businesses that aim to produce financial returns while
simultaneously making beneficial social and environmental impacts.
There are a lot of variables that have influenced the growth of ESG mutual funds in
India. The increased awareness of ESG issues among investors is one of the
important drivers. Indian investors are looking for investment opportunities that
coincide with their values as they are becoming more and more conscious of the
significance of environmental and social considerations. ESG mutual funds have
become a well-liked choice for investors wishing to invest in businesses that adhere
to ESG standards.
Regulation changes are another element influencing the growth of ESG mutual
funds in India. The regulatory organization that regulates India's securities markets,
the Securities and Exchange Board of India (SEBI), has taken a number of actions
to encourage ESG investing there. Guidelines for the consideration of ESG aspects
in mutual fund investing decisions were released by SEBI in 2018. According to
these criteria, mutual funds must inform investors of their ESG policies and report
on their ESG performance.
Moreover, SEBI has launched a variety of programmes to support sustainable
investing in India. In India, for instance, SEBI has established a Green Bond
Framework that lays out rules for the issue of green bonds. A stewardship policy
that SEBI has introduced requires mutual funds to declare how they use their
voting privileges on behalf of their clients.
The growth of ESG mutual funds in India has been significant in recent years.
According to the Association of Mutual Funds in India (AMFI), assets under
management in ESG mutual funds in India increased from INR 1.65 billion in
March 2018 to INR 32.28 billion in February 2021. This growth has been driven by
a number of factors, including
Changing investor preferences, regulatory developments, and the growing
availability of ESG data and metrics.
The option to invest in businesses that are benefiting society and the environment
is one of the main advantages of ESG mutual funds in India. In addition to giving
investors a feeling of direction, this can promote beneficial social and
environmental change. Investors can also gain financial advantages from ESG
mutual funds in India. ESG mutual funds in India can assist to reduce risk and
produce enticing long-term returns by investing in businesses that are wellgoverned and that contribute positively to society and the environment.
Despite these advantages, there are disadvantages to buying ESG mutual funds in
India. The restricted availability of high-quality ESG data is one of the major
problems. Although there are several companies in India that offer ESG data and
ratings, the quality of the data might vary greatly. Due to this, it may be challenging
for mutual funds to consider ESG factors when making investing decisions.
1.6 Challenges of ESG Mutual Funds in India
Mutual funds for environmental, social, and governmental issues (ESG) are a
relatively recent kind of investment in India. In addition to seeking to maximise
financial returns, these funds seek to invest in businesses that give priority to ESG
considerations. Even though there is a growing market for ESG mutual funds in
India, these funds nevertheless face a number of difficulties. In this essay, we'll look
at a few of the difficulties faced by ESG mutual funds in India.
Challenges
Limited availability
of ESG investment
options
2.
Lack of
standardisation
and regulation
Quality and
availability of data
Perception of
lower returns
Insufficient
knowledge and
education
1. Limited availability of ESG investment options
The lack of available investment options is one of the biggest problems for ESG
mutual funds in India. India is still in the early stages of ESG investing, hence there
aren't many businesses there that satisfy ESG standards. Due to this, it may be
challenging for ESG mutual funds to diversify their portfolios, which could raise
risk.
2. Lack of standardisation and regulation
The absence of regulation and standards in the ESG sector is another problem for
ESG mutual funds in India. Since there is no set method for doing ESG investing,
several ESG funds may use different selection criteria. Investors may find it
challenging to compare and assess ESG funds due to the lack of standardisation.
However, ESG investment is not heavily regulated, which can make it difficult for
investors to confirm if ESG funds are investing in businesses that adhere to ESG
standards.
3. Quality and availability of data
Access to reliable information on ESG factors is necessary for ESG investing. Data
quality and availability in India can be problematic, especially when considering
societal and governmental aspects. In India, businesses might not be required to
publish information on social and governance aspects to the same level that they do
for environmental factors. ESG mutual funds may find it challenging to evaluate the
ESG performance of possible assets as a result.
4. Perception of lower returns
The belief that ESG mutual funds may produce poorer returns compared to
traditional mutual funds is another issue that ESG mutual funds in India must deal
with. The idea that businesses that focus ESG factors would not be as profitable as
those that prioritise financial returns may be the source of this notion. Yet, studies
have shown that organisations with high ESG performance can provide profits in
the long run.
5. Insufficient knowledge and education
Finally, the lack of knowledge and education among investors is a significant
problem for ESG mutual funds in India. The idea of ESG investing and the possible
advantages of investing in ESG funds may not be well known to many investors.
Due to this, it may be challenging for ESG funds to draw in investors, especially
those who might be wary of the strategy.
In conclusion, ESG mutual funds in India suffer a number of difficulties, including
a lack of standardisation and regulation, a lack of data availability and quality, a
perception of reduced returns, and a lack of investor knowledge and education.
However, it is possible that these difficulties will be resolved in the future as ESG
investing continues to become more and more popular worldwide. In the interim,
ESG mutual funds in India will have to overcome these difficulties to draw in
investors, produce high profits, and have a good effect on both society and the
environment.
4.9. Indian ESG mutual funds' interaction with companies on ESG
issues
Over the past ten years, ESG (Environmental, Social, and Governance) investing has
gained popularity on a global scale. A type of investment fund called ESG mutual
funds makes investments in businesses that use ethical and sustainable business
practises. Engagement with corporations on ESG concerns is considered as a vital
aspect of attaining this purpose, which is to encourage sustainable and responsible
corporate behaviour.
This trend is being followed by ESG mutual funds in India, many of which are
interacting with corporations on ESG problems through proxy voting and shareholder
engagement. These engagement techniques are thought to be successful means of
influencing company behaviour and advancing ESG practises.
ESG mutual funds in India have as one of its key goals the promotion of ethical and
sustainable corporate activity. ESG mutual funds interact with businesses in a variety
of ways to accomplish this goal. Speaking with corporate management is one of the
most popular techniques. Direct engagement with the management of the organisation
is required during dialogues with them in order to discuss ESG issues and motivate
them to take action.
By submitting shareholder resolutions, ESG mutual funds communicate with
corporations in another way. Shareholder resolutions are motions presented by
shareholders for approval at an annual general meeting of a firm (AGM). These
initiatives may address a variety of ESG issues, including diversity, human rights, and
climate change. Shareholder resolutions can be used as a motivator for businesses to
embrace ESG best practises, enhance their ESG disclosures, and lessen their
detrimental effects on the environment and society.
Another significant engagement technique employed by ESG mutual funds in India is
proxy voting. By casting a vote via a proxy, shareholders can voice their views on
corporate affairs, including ESG concerns. ESG mutual funds employ proxy voting to
support initiatives that support ethical and sustainable business practises.
Depending on the individual ESG issue and the reaction of the organisation, the
impact of different engagement tactics varies. Engagement has occasionally led to
beneficial adjustments, such as the adoption of more transparent reporting on ESG
issues, the launch of fresh sustainability programmes, and a decrease in environmental
impact. For instance, in 2020, ESG mutual funds in India submitted resolutions to a
number of businesses requesting more openness on their usage of water resources,
which led to increased disclosures from these businesses.
Yet, there are also instances where engagement hasn't led to appreciable change, and
some businesses could be reluctant to engage in ESG work, especially if it
necessitates considerable adjustments to their operational procedures. In addition,
some ESG mutual funds might not have enough resources to work with all the
companies in their portfolio.
The Securities and Exchange Board of India (SEBI) has also enacted legislation in
recent years to promote ESG involvement and investment in India. The top 1,000
Indian listed businesses must disclose their ESG risks and opportunities in their
annual reports, under SEBI requirements that went into effect in 2020. ESG mutual
funds are anticipated to use this regulation to promote better responsibility and
transparency on ESG problems.
In conclusion, ESG mutual funds in India are increasingly interacting with
corporations on ESG problems through shareholder activism and proxy voting. The
success of these engagement tactics in changing business behaviour depends on the
particular ESG problem, the company's reaction, and the resources available to the
ESG mutual fund. The implementation of laws by SEBI is anticipated to promote
ESG participation and investment even further in India.
1.6 Regulatory environment surrounding ESG mutual funds
ESG investing has attracted a lot of attention lately as more and more investors try
to match their investments with their values and encourage beneficial social
and environmental effects. Regulators in India have responded by taking action to
encourage and control ESG investing, particularly in the context of mutual funds.
The Securities and Exchange Board of India oversees the regulation of mutual
funds in India (SEBI). In order to promote ESG investing in mutual funds, SEBI
has taken a variety of actions. Mutual funds must disclose their policies and
procedures for responsible investment, including ESG issues, according to a SEBI
circular published in 2017. Also, the circular required mutual funds to publish the
portion of their managed assets that are invested in businesses that meet specified
ESG criteria
A consultation paper on Sustainable investment in India was published by SEBI in
2018. In addition to getting feedback on the potential advantages and difficulties
of ESG investing, the paper also asked for suggestions for potential regulatory
actions to support ESG investing in India.
The ESG scores of the companies in mutual funds' portfolios, as well as the
formulas used to determine those values must be disclosed, according to a SEBI
circular published in 2019. Mutual funds were also compelled by the circular to
report the ESG risks connected to their assets.
Several legislative actions have aided in promoting ESG mutual fund investing in
India. However, ESG mutual funds in India also face difficulties. The absence of
standardized ESG data and indicators is one of the main problems. Mutual funds
may find it
Challenging to assess the ESG performance of various companies and to
make wise investment decisions in the absence of standardized ESG data.
The fact that investors in India's ESG mutual funds are not familiar with and don't
fully comprehend ESG principles is another problem. Mutual funds must inform
investors about the significance of ESG aspects and offer open, comprehensible
ESG data in order to meet this challenge.
Despite these obstacles, it's probable that ESG mutual funds will continue to
gain popularity in India over the next years as more and more investors choose to
make investments that support their values and have positive social and
environmental effects. Investors may successfully traverse the expanding world of
sustainable investing and make a positive impact on a more sustainable future by
knowing the legal environment for ESG mutual funds in India.
Sustainable investing is being promoted in India through other initiatives in
addition to SEBI’s regulatory procedures. An ESG index, for instance, was
introduced by the BSE (Bombay Stock Exchange) in 2018 and analyses business
success according to ESG performance. The objective of the index is to provide a
benchmark for ESG investing in India and to encourage companies to improve
their ESG performance.
Also, there are other groups in India that are promoting ESG investing. To
encourage education and understanding of ESG concerns among investment
professionals in India, the Indian Association of Investment Professionals (IAIP)
has established an ESG committee.
In conclusion, the regulatory landscape for ESG mutual funds in India is changing
as authorities work to promote and control ESG mutual fund investing. Investors
can successfully traverse the changing landscape of sustainable investing and
contribute to a more sustainable future by being aware of the regulatory
environment and the difficulties faced by ESG mutual funds in India. ESG mutual
funds are probably going to keep
Playing a significant role in creating positive social change given the rising
popularity of ESG investing in India.
4.4 Regulations and guidelines from SEBI and other regulatory
bodies
Measures have been taken by the Securities and Exchange Board of India (SEBI) to
encourage ESG disclosures and practises in India. The top 1,000 listed businesses by
market capitalization are required to report on ESG risks and opportunities under a
new format called BRSR that SEBI introduced in May 2021. The BRSR framework
will be optional in FY21–22 and required starting in FY22–23. It specifies the ESG
measures that businesses must report, which is a crucial step towards standardisation
and will enhance comparability.
The top 1,000 Indian listed firms are required by SEBI to include information about
their ESG-related risks and opportunities in their annual reports. In addition, SEBI has
mandated that listed businesses publish their ESG policies and practises in their
annual reports and have at least one female independent director.
Also, SEBI published a circular in November 2020 requiring mutual funds to report
the ESG risks related to their assets. Asset management firms (AMCs) must report
their ESG risk scores in their monthly portfolio disclosures and annual reports,
according to the circular. Additionally, SEBI has made it mandatory for mutual fund
schemes to disclose the percentage of investments made in ESG-compliant securities.
In addition to SEBI, other regulatory organisations have acted to advance ESG
practises in India, including the Reserve Bank of India (RBI). The RBI established a
distinct ESG category for bank investments in May 2021. According to the new
regulations, banks must categorise their investments in publicly traded companies
according to their ESG performance.
In conclusion, SEBI and other Indian regulatory organisations have implemented a
number of initiatives to support ESG disclosures and practises. Significant advances
in this direction include the introduction of the BRSR format and the requirement for
ESG-related disclosures in annual reports for the top 1,000 listed businesses. The
actions implemented by regulatory agencies are anticipated to improve ESG scores,
advance sustainable investments in India, and improve ESG disclosures.
4.5 Industry standards and best practices from organizations such as
the Global Reporting Initiative (GRI) and Sustainability Accounting
Standards Board (SASB)
The Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board
(SASB) are two organisations that provide industry standards and best practises for
firms and funds to report on ESG aspects. These guidelines offer a framework for
businesses and funds to report their ESG practises in a thorough and consistent
manner, despite the fact that they are not required to do so.
These organisations advise fund managers for ESG mutual funds in India to publish
their ESG investment process, including how they recognise and rank ESG variables,
how they communicate with businesses about ESG matters, and how they track and
report on ESG performance. Additionally, the GRI and SASB advise that funds
declare their ESG policies and the methods they use to incorporate ESG
considerations into their investment decision-making.
Furthermore, the GRI and SASB offer detailed recommendations on ESG elements
that are pertinent to the mutual fund sector. For instance, the GRI advises that funds
make their approach to managing risks connected to climate change, including how
they evaluate and manage the physical and transition hazards related to climate
change, public. The SASB offers recommendations on particular ESG concerns
relevant to the mutual fund sector, like product labelling, fee transparency, and proxy
voting.
Overall, these organisations' advice can assist Indian ESG mutual funds in improving
their ESG disclosures and giving investors more thorough and consistent information
on their ESG policies.
1.7 Development in ESG Mutual Funds
India is hardly an exception to the enormous worldwide momentum that ESG
investing has experienced. ESG mutual funds have developed as one of the main
methods that investors can participate in companies that meet ESG criteria in
India, as investors want to more closely match their investments with their beliefs
and to encourage beneficial social and environmental consequences.
There are a lot of variables that have influenced the growth of ESG mutual funds in
India. The increased awareness of ESG issues among investors is one of the
important drivers. Indian investors are looking for investment opportunities that
coincide with their values as they are becoming more and more conscious of the
significance of environmental and social considerations. ESG mutual funds have
become a popular choice for investors seeking to purchase shares of businesses that
meet ESG criteria.
Regulation changes are another element influencing the growth of ESG mutual
funds in India. The regulatory organization that regulates India's securities markets,
the Securities and Exchange Board of India (SEBI), has taken a number of actions
to encourage ESG investing there. Guidelines for the consideration of ESG aspects
in mutual fund investing decisions were released by SEBI in 2018. According to
these criteria, mutual funds must inform investors of their ESG policies and report
on their ESG performance.
Moreover, SEBI has launched a variety of programmes to support sustainable
investing in India. In India, for instance, SEBI has established a Green Bond
Framework that lays out rules for the issue of green bonds. Moreover, SEBI has
released a stewardship code, which requires mutual funds to disclose how they
exercise their voting rights on behalf of
Their investors.
ESG mutual funds have significantly increased in popularity in India in recent
years. Assets under management in ESG mutual funds in India climbed from
INR 1.65 billion in March 2018 to INR 32.28 billion in February 2021, according
to the Association of
Mutual Funds in India (AMFI). Its increase has been fuelled by a variety of
variables, such as shifting investor preferences, legislative changes, and the
expansion of ESG data and indicators.
The lack of high-quality ESG data is one of the main obstacles to the growth of
ESG mutual funds in India. Although there are several companies in India that
offer ESG data and ratings, the quality of the data might vary greatly. It may be
challenging for mutual funds as a result to incorporate ESG factors into their
investment decisions.
The small number of businesses that adhere to ESG standards presents another
obstacle to the growth of ESG mutual funds in India. While many Indian
businesses are dedicated to ESG concerns, there may not be as many that actually
meet the standards. Due to this, mutual funds may find it challenging to build
portfolios that satisfy their ESG objectives.
The growth of ESG mutual funds in India is anticipated to continue in the years to
come, despite these obstacles. ESG mutual funds are projected to play a bigger role
in India's mutual fund industry as investors become more aware of the significance
of ESG concerns and as regulatory reforms continue to support sustainable
investing.
In conclusion, evolving investor tastes, legislative changes, and the expansion of
ESG data and metrics availability have all contributed to the growth of ESG
mutual funds in India. Even though ESG mutual funds have grown significantly
in India, there are still
Issues that need to be resolved. Yet, there is a bright future for ESG mutual funds
in India, and in the years to come, they are anticipated to play a bigger role in the
country's mutual fund market.
1.8 Impact on Financial Performance
Investing in businesses that adhere to the highest standards of environmental,
social, and governance is known as ESG investment. ESG investing is based on the
premise that organizations that give attention to ESG issues typically outperform
their counterparts
Over the long term. According to numerous studies, businesses that give priority to
ESG issues typically have lower risk profiles, higher profitability, and better longterm growth prospects.
ESG investing has accelerated significantly in recent years in the Indian
environment. In India, ESG mutual fund assets under management (AUM)
increased by 94% in 2020, surpassing Rest 20,000 cores, according to a
Morningstar report. This development is a sign of Indian investors' growing interest
in Sustainable investing.
Whether ESG investment has an effect on financial performance is one of the
main queries that investors ask. According to studies, businesses that give attention
to ESG factors generally perform better financially. The reason for this is that
businesses that place a high priority on ESG aspects typically have reduced risk
profiles, which translate into cheaper capital costs and greater valuations.
Companies that give priority to ESG concerns also frequently enjoy stronger brand
recognition and consumer loyalty, which can lead to increased sales and
profitability.
Several researches have been done in India to look at how ESG investing affects
financial success. According to one analysis by Kodak Institutional Equities,
businesses with strong ESG ratings frequently beat the market. According to the
research, between 2015 and 2019, the Nifty ESG index outperformed the Nifty 100
index by 0.8%. Similarly, a study by the BSE Institute discovered that businesses
with higher ESG rankings typically had more favourable profitability and growth
prospects.
The effect that ESG investing may have on company behaviour is another crucial
factor. Investors can strongly encourage businesses to prioritize ESG problems by
investing in businesses that place a high priority on these considerations. This may
lead to businesses adopting more ethical and sustainable practices, which may
benefit both the environment and society at large.
The expansion of ESG investment in India is also a sign of investors'
shifting perspectives on responsible investing. Investors are anticipated to give
greater weight to ESG considerations when making investment decisions as they
become more conscious of the effects of their holdings on the environment and
society. As investors become more aware of the effects of their investments, this
trend is anticipated to continue in the upcoming years.
Therefore, ESG investing has the ability to influence the Indian financial market
for the better. Investors can gain financial gains and support the growth of a more
sustainable and ethical economy by making investments in businesses that place a
high priority on ESG aspects. The expansion of ESG mutual funds in India is
encouraging for the direction of responsible investment, and I think this trend will
continue.
1.9 Policy reports and analysis from think tanks and industry
associations such as the Confederation of Indian Industry (CII)
The CII is a non-governmental organisation that speaks for Indian corporations and
trade groups. A Sustainability Council that is dedicated to advancing sustainable
development in India exists within the organisation. "ESG and Responsible
Investment: Opportunities and Challenges" and "Sustainability Reporting in India:
Present Practices and Future Roadmap" are only a couple of the reports the council
has written about ESG investing in India.
The studies offer information on trends, obstacles, and opportunities related to ESG
investing in India at the moment. Also, they offer suggestions on how investors,
authorities, and businesses may encourage ethical investing.
As an illustration, the report "ESG and Responsible Investment: Opportunities and
Challenges" emphasises the growing interest in ESG investing in India, which is
fueled by factors like regulatory mandates, growing awareness of environmental and
social issues, and the desire for long-term value creation. The paper also notes a
number of obstacles, including a lack of ESG data and standardisation, a lack of
investor ESG experience, and the requirement for regulatory clarity around ESG
disclosures.
The paper makes a number of recommendations to address these issues, including the
need for businesses to improve their ESG disclosures, the creation of ESG
measurements and standards, and the requirement for investor capacity-building
programmes.
Parallel to this, the study "Sustainability Reporting in India: Present Practices and
Future Roadmap" offers an overview of the country's sustainability reporting practises
and emphasises the need for a uniform reporting structure. To enhance the quality and
comparability of sustainability disclosures, the paper advises the creation of a
framework for reporting on sustainability that is in line with international standards,
such as the Global Reporting Initiative (GRI).
In conclusion, policy studies and analyses from business groups and think tanks, such
the Confederation of Indian Industry, offer insightful opinions and suggestions on
ESG mutual funds in India. These papers can aid in promoting sustainable practises in
India by assisting investors, regulators, and businesses in better understanding the
advantages and disadvantages of ethical investing there.
1.10 Trends in ESG investing
The expansion of ESG funds is one of the most important developments in
ESG investment. Invested assets in sustainable funds in the US raised to a new high
of $1.7 trillion in 2020, up from $1.2 trillion in 2019, claims Morningstar. An
increase in investor demand for investments in businesses that place a high priority
on ESG considerations has contributed to this expansion. To accommodate this
need, more asset managers have also introduced ESG funds, and as a result of these
funds' successful recent performance, more investors have been interested in them.
The incorporation of ESG variables in investment decision-making is another trend
in ESG investing. Financial and ESG factors are increasingly taken into account
when making investment decisions. The increased understanding of the benefits and
hazards related to ESG concerns is what is driving this integration. Companies that
place a high priority on ESG elements, for instance, may be better prepared to
handle social and environmental risks, such as labour disputes and environmental
risks like climate change. Also, businesses that place a high priority on ESG
concerns may be better positioned to seize opportunities like the rising need for
sustainable goods and services.
The influence of ESG investing on business conduct is a third trend in ESG
investing. ESG investors are increasingly influencing business behaviour with their
investments. For Instance, ESG investors may interact with businesses to influence
them to strengthen their ESG practices or to divest from businesses that do not
adhere to ESG standards. ESG investors may also participate in shareholder votes
on ESG-related issues or give their support to ESG-related projects.
New investment products and techniques have also been created as a result of
ESG investing. For instance, impact investing is a recent investment approach that
aims to produce both financial returns and beneficial social and environmental
consequences. Impact investing may involve making investments in businesses that
offer remedies for social and environmental issues, such as affordable housing or
renewable energy. Additionally, among ESG investors, green bonds, which fund
environmentally favourable initiatives, are gaining popularity.
1.11 Types of ESG Mutual Funds
a. Thematic ESG Funds
ESG funds make investments in businesses that are cantered on particular issues,
including
renewable
energy,
environmentally
friendly agriculture,
or
water
conservation. These funds are made to reflect the ideals of investors and expose
investors to businesses that are tackling particular ESG issues. Investors seeking
focused exposure to particular ESG themes may find thematic ESG funds to be a
useful choice.
b. Sustainable Investment Funds
Funds
that
invest
in
firms
with
a
commitment
to
improve
their
sustainability performance are called sustainability-linked funds. These pledges are
frequently connected to certain ESG objectives, including lowering carbon
emissions or boosting board diversity. Investors who want to support businesses
that are actively working to enhance their ESG performance may find sustainability
linked funds to be a good choice.
C. Best-in-Class Funds
Best-in-class
funds
make
investments
in
businesses
that
outperform
their competitors in terms of ESG metrics. These funds attempt to find businesses
that, in terms of ESG performance, are at the top of their respective industries. Bestin class funds can be a smart choice for investors who wish to put money
into businesses that are already performing well in terms of ESG.
d. Impact Funds
Impact funds make investments in businesses and initiatives that aim to have
a positive
social
or
environmental
impact.
These
funds
frequently
provide preference to businesses that are tackling particular ESG issues like
poverty, education, or climate change. Impact funds might be a wonderful
alternative for investors who wish to make a positive impact with their
investments.
e. ESG Index Funds
ESG index funds are made to follow ESG indexes, which are created by
choosing which firms to include based on ESG criteria. These funds offer exposure
to a wide range of businesses that satisfy particular ESG standards. Investors that
are looking for a low-cost, passive way to invest in ESG may find that ESG
index funds are an excellent option.
f. Active ESG Funds
Active ESG funds are actively managed funds that invest in companies depending on
their ESG performance. These funds may choose which companies to include in their
portfolio using a range of ESG metrics and analyses. Investors that prefer a more
hands-on approach to ESG investing may find active ESG funds to be a good choice.
In conclusion, there are numerous ESG mutual funds accessible in India, each with
a distinct set of qualities and investment philosophies. The various types of ESG
funds— thematic, sustainability-linked, best-in-class, impact, ESG index, and
active—offer investors various options to invest in businesses that place an
emphasis on ESG factors. While choosing an ESG mutual fund, investors should
take their investing objectives and risk tolerance into great consideration. Investors
can choose how to include ESG aspects in their investing portfolios by having a
thorough understanding of the various ESG mutual fund types available in India.
1.12 Criteria for ESG Mutual funds in India
a. Environmental Criteria
Environmental criteria are the first requirement mutual funds must satisfy in order to
qualify as ESG funds. This encompasses elements like the carbon footprint of
a business, the utilization of renewable energy sources, and the control of waste
and emissions. While choosing companies for their portfolio, mutual funds must
take these environmental considerations into account. Additionally, funds must
be transparent about how they evaluate environmental standards and the
particular indicators they employ.
b. Social Criteria
Social criteria are the second requirement mutual funds must satisfy in order
to qualify as ESG funds. This covers elements like labour laws, human rights,
and interpersonal relationships. While choosing companies for their portfolio,
mutual funds must take these social considerations into account. Also, funds must
be transparent about how they evaluate social criteria and what indicators they use.
c. Governance Criteria
The third requirement for mutual funds to qualify as ESG funds is governance
standards. This includes elements like the makeup of the board, CEO pay, and
the openness of financial reporting. While choosing companies for their
portfolio, mutual funds must take these governance considerations into account.
Additionally,
funds
must
be
transparent
about
how
they
assess
governance standards and the particular indicators they employ.
d. ESG Integration
Mutual funds must incorporate environmental, social, and governance (ESG) factors
into their overall investment strategy in addition to achieving particular ESG
requirements. This means that from the selection of securities to the creation of a
portfolio, ESG factors must be taken into account. Mutual funds must also
be transparent about how they integrate ESG factors and the particular metrics
they employ.
e. Reports and Transparency
Finally, to qualify as ESG funds, mutual funds must have effective transparency and
reporting procedures in place. This includes regular reporting on the fund's ESG
performance and the precise ESG criteria that the fund is reviewing. Mutual funds
must also be transparent about how they assess ESG factors and the particular
measures they employ.
Finally, to qualify as ESG funds in India, mutual funds must satisfy
stringent environmental, social, and governance requirements. Funds must also
integrate ESG concerns into their overall investment approach, and have adequate
disclosure and reporting mechanisms in place. Mutual funds that satisfy these
requirements might give investors a way to include ESG concerns in their
investment plans. In order to keep its ESG categorization and give investors the
transparency and accountability they want, mutual funds must abide by these
standards as ESG investing gains popularity.
4.3 Industry reports and surveys from KPMG
ESG investments dominated the capital markets in 2020, driving a boom in fund
allocation to ESG products all around the world. However, issues concerning
'greenwashing' were also raised, as a flurry of new 'sustainable' or 'ESG' products
were introduced in an attempt to attract the rising money pool. Regulatory authorities
are creating guidelines and laws aimed at standardising ESG reporting to solve this
problem.
One such framework, the EU Sustainable Finance Disclosure Regulation (SFDR),
which took effect in March 2021, aims to introduce a legally obligatory and
transparent framework in regard to sustainability risks and harmonise what constitutes
sustainable finance. Financial Market Participants (FMPs), such as asset managers,
pension funds, investment businesses, banks, insurance companies, etc., are required
by the SFDR to disclose details on their sustainability policies (at the entity level) and
their financial products (product level).
With an international corporate reporting entity established in June 2021 to deliver a
cogent corporate reporting system, working closely with IFRS and other leading
framework setters and standard providers around the world, the standardisation of
ESG disclosures is also gaining momentum on a global scale. The Business
Responsibility and Sustainability Reporting (BRSR) format was introduced in India
by the Securities and Exchange Board of India (SEBI) in May 2021. According to the
BRSR framework, businesses must assess an entity's significant ESG risks and
opportunities and publish the financial ramifications as well as their plans to reduce or
manage the risks.
Another factor to take into account is the variation in ESG ratings. A considerable
discrepancy has been observed in the ratings given to the same company after many
rating agencies made their ESG ratings for companies public in 2020. The advent of
new ESG rating organisations as a result of the ESG market's expansion has further
complicated the process of interpreting these ESG rankings.
Overall, while the dust is still settling around ESG investments, various lines of
activity are moving forward to provide stability in the regulatory and voluntary
processes. More clarity on ESG investments will be made possible by the positive
momentum surrounding filling the regulatory gap and developing topical refinement.
1.13 Axis ESG Equity Fund
ESG (Environmental, Social, and Governance) investing has gained significant
attention in recent years as investors seek to align their investments with their
values and promote sustainable practices. The Axis ESG Equity Fund offers Indian
investors a platform to
Finance businesses that place a high priority on ESG issues while still looking
for long term growth potential.
Because of the fund's emphasis on ESG concerns, investment decisions are
made taking into account a company's governance structure, relationships with
employees and communities, and influence on the environment. The fund
aspires to invest in businesses that are not only financially healthy but also
socially and environmentally conscious by taking these considerations into
account.
The Axis ESG Equity Fund's investment strategy also enables it to find businesses
that other funds might pass over. The fund can find businesses with solid ESG
practices that might have long-term growth potential by performing in-depth
research and interacting with management teams at various organizations. This
strategy can expose investors to
Businesses that are well-positioned to prosper in a changing business
environment, especially as consumers, employees, and regulators place a
greater emphasis on ESG factors.
The Axis ESG Equity Fund distinguishes itself from other mutual funds in
India not just via its investing strategy but also through the use of a unique
ESG rating model. The model allows the fund to rigorously evaluate possible
investments for their ESG practices by taking into account a variety of ESG
parameters. This strategy aids in ensuring that the fund invests in companies
that meet its high ESG standards.
Overview of the Axis ESG Equity Fund
In India, a mutual fund called The Axis ESG Equity Fund debuted in 2020. The
fund's goal is to deliver long-term capital growth through investments in
businesses that adhere to ESG standards. The investing strategy of the fund is
founded on a bottom-up research procedure that selects businesses with sound
ESG practices and the potential for long term growth.
Investment Strategy
The primary investments of the Axis ESG Equity Fund are in equities and equityrelated securities of businesses that satisfy its ESG standards. Using a unique ESG
score approach, the fund's investment strategy starts with a preliminary screening
of firms based on their ESG practices. A variety of ESG criteria, including as
carbon emissions, waste management, labour standards, and board diversity are
taken into account by the model.
The fund's research staffs thoroughly examine a company's financials,
management calibre, and development potential after it has passed the initial
screening. In order to comprehend the management's ESG practices and strategies,
the team also interacts with them. The portfolio managers of the fund choose the
companies that will be included in its portfolio based on this study.
Performance
The Axis ESG Equity Fund has produced impressive results since its introduction
in 2020, beating the benchmark Nifty 100 ESG index. In comparison to the Nifty
100 ESG index’s return of 29.65% over the same time period as of December
2021, the fund's return from inception has been 37.32%. Due to the fund's
emphasis on businesses with solid ESG standards and long-term growth potential,
it has performed well.
Key Characteristics
The Axis ESG Equity Fund differs from other mutual funds in India in a number
of significant ways. The fund's investing strategy and portfolio composition both
show a high emphasis on ESG factors. Second, the bottom-up research
methodology used by the fund enables it to pinpoint businesses with outstanding
ESG practices and long-term growth prospects. Finally, the fund can evaluate
companies based on a variety of ESG variables according to its own ESG score
model.
Conclusion
The Axis ESG Equity Fund, an Indian mutual fund, invests in companies with
ethical ESG practices and long-term growth prospects. The bottom-up research
method used to identify companies that match the fund's ESG criteria forms the
foundation of its investment strategy. The fund has produced impressive results
since its introduction in 2020, beating the industry benchmark Nifty 100 ESG index.
The fund's significant emphasis on ESG criteria, bottom-up research methodology,
and proprietary ESG scoring algorithm are some of its important traits. Funds like
the Axis ESG Equity Fund give investors a method to include ESG elements into
their investment strategy as ESG investing continues to gain popularity.
The Axis ESG Equity Fund is a desirable option for investors who want to invest
in businesses that give ESG considerations a high priority while still looking for
long-term growth prospects. With a significant emphasis on ESG issues, a bottom-
up research methodology, and a proprietary ESG scoring algorithm, it stands out
from other mutual fund offerings in India. The Axis ESG Equity Fund's strategy
may become more pertinent for investors looking to match their investments with
their values as ESG factors continue to gain relevance in the investment industry.
1.14 Aditya Birla Sun Life ESG Fund
The Aditya Birla Sun Life ESG Fund is a mutual fund in India that focuses on
companies with strong Environmental, Social, and Governance (ESG) practices and
growth potential. A joint venture between the Aditya Birla Group and Sun Life
Financial Inc., Aditya Birla Sun Life Mutual Fund, established the fund in 2019.
The fund's investing strategy is based on a combination of top-down and bottom-up
research techniques that help it uncover businesses with great growth potential that
also match its ESG requirements.
The fund's ESG requirements are based on a unique ESG scoring approach that
takes into account a variety of ESG aspects, such as corporate governance, social
responsibility, and environmental impact. The research team for the fund interacts
with businesses to learn about their ESG practices and strategies and to motivate
them to enhance their ESG performance. The Aditya Birla Sun Life ESG Fund is a
distinctive product in the Indian
mutual fund market because it focuses on ESG investing, which is becoming
more and more important globally as investors look to match their investments
with their values and support businesses that are improving society and the
environment.
Overview of the Aditya Birla Sun Life ESG Fund
In India, a mutual fund called the Aditya Birla Sun Life ESG Fund debuted in
2019. The goal of the fund is to provide long-term capital growth through
investments in businesses that adhere to ESG standards. The investing strategy of
the fund is founded on a combination of top-down and bottom-up research
techniques that pinpoint businesses with sound ESG policies and expansion
potential.
Investing Methodology
The Aditya Birla Sun Life ESG Fund's primary holdings are equities and equityrelated securities of businesses that satisfy its ESG requirements. The top-down
analysis of macroeconomic trends and ESG themes that are anticipated to spur
future growth is the first step in the fund's investment process. The research team
for the fund then does a bottom-up study of each company to determine which
ones fit its ESG standards and have a promising future.
The fund's ESG requirements are based on a unique ESG scoring approach that
takes into account a variety of ESG aspects, such as corporate governance, social
responsibility, and environmental impact. The research team for the fund interacts
with businesses to learn about their ESG practices and strategies and to motivate
them to enhance their ESG performance.
Performance
The Aditya Birla Sun Life ESG Fund has produced impressive results since its
inception in 2019, beating the benchmark Nifty 100 ESG index. In comparison to
the Nifty 100 ESG index's return of 29.65% during the same time period as of
December 2021, the fund had produced a return of 51.52% since its start. The
fund's successful performance
Can be ascribed to its emphasis on businesses with promising development and
good ESG standards.
Key Characteristics
The Aditya Birla Sun Life ESG Fund has several significant attributes that
differentiate it from other mutual funds in India. In order to find businesses with
good ESG practices and growth prospects, the fund first employs a combination of
top-down and bottom-up research techniques. In addition to verifying that the
companies match the fund's ESG requirements, this method enables the fund to
discover businesses that are likely to profit from macroeconomic trends and ESG
themes.
Second, the fund can assess firms using a variety of ESG characteristics thanks to
its in house developed ESG score model. The approach takes into account a
company's social responsibility and corporate governance standards in addition to
its environmental impact. This all-encompassing approach to ESG investing
makes sure that the fund's portfolio includes businesses that are actively
improving society and the environment while upholding high standards of
corporate governance.
The research team for the fund also interacts with businesses to learn about their
ESG practices and strategies and to motivate them to enhance their ESG
performance. This engagement strategy supports the overall objective of
increasing ESG awareness and
Improvement in the companies in which the fund invests in addition to assisting
the fund in identifying businesses with good ESG p.ractices.
Conclusion
The Aditya Birla Sun Life ESG Fund is a mutual fund in India that focuses on
companies with strong ESG practices and growth potential. The fund's investing
strategy is based on a combination of top-down and bottom-up research techniques
that help it uncover businesses with great growth potential that also match its ESG
requirements. The fund has produced good results since its introduction in 2019,
surpassing the benchmark Nifty.
How to invest in ESG mutual funds in India
As ESG investing gains popularity around the world, many investors in India are
interested in investing in ESG mutual funds.
Identify ESG
Mutual Funds
Understand the
Fund’s ESG
Criteria
Assess Fund
Performance
Consider
Diversification
Invest through a
Broker or Online
Platform
Monitor
Investment
1. Identify ESG Mutual Funds
Finding available ESG funds is the first step in investing in ESG mutual funds in
India. Investors can learn more about ESG mutual funds by browsing online or
speaking with a financial advisor. Axis ESG Equity Fund, Aditya Birla Sun Life ESG
Fund, and SBI Magnum Equity ESG Fund are a few of the well-known ESG mutual
funds in India.
2. Understand the Fund’s ESG Criteria
Once investors have found ESG mutual funds, it's critical to comprehend the funds'
ESG requirements. The selection of companies based on ESG considerations may
follow diverse criteria for various ESG funds. Prioritizing social or governance
aspects may be the top priority for some funds while it may not be for others. To
make sure that it complements their own ESG values, investors should carefully
examine the investing strategy and criteria of the fund.
3. Assess Fund Performance
Before making an investment, investors should evaluate the performance of ESG
mutual funds. The past performance, costs, and risk profile of the fund are all taken
into consideration. To establish whether the fund is producing strong returns in
comparison to its peers, investors should also compare the fund's performance to that
of traditional mutual funds.
4. Consider Diversification
While investing in ESG mutual funds, diversification is crucial, just like with any
other investment. To achieve portfolio diversity, investors can think about purchasing
different ESG funds. In order to further diversify their portfolios, investors may wish
to think about investing in several asset classes, such as bonds or real estate.
5. Invest through a Broker or Online Platform
ESG mutual funds are available for investment through a broker or online platform in
India. Building a diverse ESG portfolio is simple for investors thanks to the
abundance of brokers and online platforms that offer a variety of ESG funds. To be
sure they are getting a good deal, investors should carefully examine the expenses
related to investing through a broker or online platform.
6. Monitor Investment
Finally, investors should keep a close eye on their ESG investments to make sure they
remain in line with their ESG principles and to evaluate the performance of the fund.
To make sure the fund remains in line with their investing objectives, investors should
also keep an eye out for any modifications to the fund's investment strategy or ESG
standards.
Finally, investing in ESG mutual funds in India entails locating available funds,
comprehending the fund's ESG requirements, evaluating fund performance, taking
diversification into account, investing through a broker or online platform, and
keeping track of investments. By taking the procedures outlined here, investors can
create a diverse ESG portfolio that supports their ESG priorities and yields high
financial returns.
Chapter No. 2: Research Methodology
2.1 Problem Statement
In recent years, the investment in the environment, social and governance
sector(ESG) has gained considerable attention worldwide as investors increasingly
choose to invest in companies that align with their values and contribute to
sustainable development. In India, investors also show growing interest in investing in
ESG ,with an increase in offerings of mutual funds in ESG. However, there is a lack
of comprehensive research on the impact of ESG factors on corporate performance,
challenges, potentials, demand drivers, regulatory frameworks, investment strategies
and Indian business performance. The aim of this study is to assess the potential of
ESG mutual funds as sustainable investment options for Indian investors. It analyzes
their performance ,challenges and demand drivers and examines the impact of ESG
factors on financial performance. The research report titled “What is the potential of
ESG mutual funds in India as a sustainable investment option? ”
2.2 Objectives
1. To examine the performance of ESG mutual funds in India and compare it with
traditional investment options.
2. To identify the challenges faced by ESG mutual funds in India and suggest
strategies to overcome them.
3. To explore the potential of ESG mutual funds in India as a sustainable investment
option for retail and institutional investors.
4. To examine the role of regulatory frameworks and industry standards in
promoting the growth of ESG investing in India.
5. To analyze the investment strategies and portfolio construction of ESG mutual
funds in India and compare them with international best practices.
6. To investigate the impact of ESG factors on the financial performance of
companies and how it relates to the performance of ESG mutual funds.
2.3 Scope of Study
The scope of this study on ESG investing in India includes analysing the current state
of ESG investing in India, including market size, growth, and trends. The study will
look into the elements that influence investor preferences, legal frameworks, social
and environmental concerns, and the demand for ESG investing in India. The study
will also look at Indian ESG mutual fund investment methods and portfolio creation,
comparing them to best practises from around the world. The study will also look into
the relationship between the performance of ESG mutual funds and how ESG issues
affect the financial performance of Indian enterprises. This study's overall scope is
wide and it covers a variety of ESG investing-related subjects in India.
2.4 Research Method
Analysis of market data and financial reports may be used in a study on ESG
investing in India that employs a quantitative research methodology to evaluate the
performance of ESG mutual funds in India. Examining important performance
measures including returns, volatility, and risk management plans may fall under this
category. The study technique may also include statistical analysis to determine the
factors that influence demand for ESG investing in India and to investigate the effects
of ESG factors on corporate financial performance and how that performance relates
to the performance of ESG mutual funds. All things considered, a quantitative
research approach can offer insightful information about the success and prospects of
ESG investing in India.
2.5 Limitations Of The Study:

Availability and quality of data related to ESG factors and ESG mutual fund
performance in India may be limited

Time constraints limits the depth of the study as ESG investing is a rapidly
evolving field and new developments may occur after the study has been
conducted.

The research may be limited by the scope of the study and the methodology
used. For example, a quantitative research method may not capture the full
range of factors influencing ESG investing in India, such as social and cultural
factors.
CHAPTER 3: LITERATURE REVIEW
A literature review is a thorough examination of all available information on a
subject with the goal of comprehending and critically assessing the research already
done in the area and identifying knowledge gaps. The literature review assists in the
development of fresh concepts that investigate previously unknown dimensions
based on existing research, serving as a road map for future study. To comprehend
the notion and its importance in the context of ESG (Environmental, Social, and
Governance) investing, a number of literature sources have been examined.
To learn more about the origins and growth of ESG investing globally, foreign
literature and publications have been reviewed. In order to better comprehend the
additional issues experienced in India, publications published in foreign journals
that discuss the principles, outlines, and worldwide challenges of ESG investment
have been examined.
Review of published papers on the significance of ESG elements in investment
decision-making and their effect on firms' financial performance. To further
understand the impact of regulatory and supervisory frameworks on the ESG
investing landscape in India, reports released by regulatory authorities including the
Securities and Exchange Board of India (SEBI) have been reviewed.
Research on the incorporation of ESG factors into investment strategies and the
contribution of technology to ESG investing facilitation have also been thoroughly
analysed. This assessment intends to identify the difficulties investors have when
incorporating ESG criteria into investment decision-making and to indicate areas in
which additional study is required to overcome these difficulties.
In order to increase the understanding of ESG investing in India, this literature
analysis concludes by providing a thorough summary of the current research on the
subject and highlighting areas in which more study is required. The chapter is
structured in accordance with the primary sources, which include books, journals,
and reports.
3.1 Review of Books
"Sustainable Investing: A Path to a New Horizon" by Gaurav Trivedi and
Sumit Kulshreshtha (2021): This book provides a comprehensive guide to
sustainable investing and ESG practices in India. It covers a wide range of topics,
including the history and evolution of sustainable investing, the ESG framework,
and case studies of companies that have successfully integrated ESG considerations
into their decision-making processes. The authors also provide practical advice for
investors who are looking to build sustainable investment portfolios.
"ESG: Environmental, Social and Governance in India" by Bala G. Dharan
and Anand Ramanathan (2019): This book is a comprehensive guide to ESG
practices in India, covering topics such as the history and evolution of ESG, the
ESG framework, and case studies of companies that have successfully integrated
ESG considerations into their operations. The authors also provide practical
guidance on how companies can improve their ESG practices and how investors
can evaluate companies based on their ESG performance.
"The Sustainability Edge: How to Drive Top-Line Growth with TripleBottom-Line Thinking" by Suhas Apte and Jagdish N. Sheth (2014) : This book
is a guide to the "triple-bottom-line" approach to sustainability, which considers not
just financial returns, but also social and environmental impacts. The authors
provide case studies of companies that have successfully integrated sustainability
into their business models and provide practical guidance for companies looking to
do the same. The book also covers the role of investors in driving sustainable
business practice
"The ESG Factor: A Handbook for Responsible Investors" by R. S. Sharma
and J. J. Irani( 2021): This book provides an overview of ESG practices in India
and practical guidance on how investors can incorporate ESG factors into their
investment decisions. It covers topics such as ESG frameworks, ESG data and
ratings, and the role of ESG in portfolio management
"ESG Metrics for Corporate Sustainability Reporting" by Ravi Kanbur and
Prabhu Pingali (2021): This book provides an overview of ESG metrics for
corporate sustainability reporting in India. It covers topics such as the evolution of
sustainability reporting, the role of ESG metrics in sustainability reporting, and the
challenges and opportunities in implementing ESG metrics..
"Investing with Purpose: Capitalize on the Time and Money You Have to
Create the Tomorrow You Desire" by Mark Aardsma (2018): While this book
is not specific to India, it provides practical guidance on how investors can align
their investments with their values and goals. It covers topics such as socially
responsible investing, impact investing, and ESG investing, and provides examples
of companies and funds that are making a positive impact on society and the
environment.
"Sustainable Development Goals and Corporate Social Responsibility: A
Comparative Study of India and China" by Mridula Mishra (2019) : This book
compares the sustainability practices of Indian and Chinese companies, focusing on
the role of corporate social responsibility (CSR) and the United Nations'
Sustainable Development Goals (SDGs). It covers topics such as the evolution of
CSR in India and China, the implementation of the SDGs, and the challenges and
opportunities in promoting sustainable development in both countries
3.2 Review of Journals
Indian School of Business (ISB) (2019) the goal of the ISB study was to ascertain
the degree of ESG integration among Indian mutual fund managers. According to
the survey, the majority of the managers questioned thought that ESG factors
played a significant role in determining investment decisions. The incorporation of
ESG considerations differed amongst funds, though, and it was not yet completely
integrated into the investment process.
S&P Dow Jones Indices (2019) the goal of the S&P Dow Jones Indices study was
to establish a benchmark for environmentally friendly businesses in India.
According to the study, businesses with high ESG ratings outperformed those with
low ratings over the long term. The study also discovered a link between ESG
ratings and financial performance.
MSCI ESG (2020) the goal of the MSCI ESG Research study was to shed light on
the ESG characteristics of Indian enterprises. In comparison to corporations in other
emerging economies, the study revealed that Indian companies had comparatively
weak ESG profiles. According to the report, businesses with stronger ESG profiles
typically have lower volatility and higher returns.
Morningstar (2021) The Morningstar study sought to give a general overview of
ESG investing in India. According to the survey, ESG funds have outperformed nonESG funds in India over the previous year, demonstrating that investors are placing a
higher value on sustainable investing. The study also discovered that India's ESG
investing market required more standardisation and openness.
Goyal and Verma (2020) analysed the performance of ESG mutual funds in India
during the COVID-19 pandemic. According to the study, ESG investment can offer
some level of crisis resilience because ESG funds outperformed conventional funds
during the pandemic. This study is pertinent because it sheds light on the possible
advantages of ESG investment during periods of market turbulence and financial
uncertainty.
Bagri and Singh (2021) examined the impact of ESG investing on the risk-return
tradeoff of mutual funds in India. The study discovered that adding ESG elements to
the investment process can improve mutual funds' ability to balance risk and reward.
The potential benefits of ESG investing for risk management are highlighted in this
study, which is important since it can help mutual fund managers create strategies that
strike a balance between risk and profit.
Kumar and Kumar (2021) explored the impact of ESG factors on the performance
of Indian mutual funds. The study discovered that ESG characteristics had a
beneficial impact on mutual fund performance, showing that ESG investment might
lead to more favourable financial results. This study is important because it shows that
ESG considerations have a favourable effect on mutual fund financial performance
and can help investors make wise investment decisions.
Ravi and Satpathy (2021) investigated the investment behaviour of Indian
institutional investors towards ESG factors. According to the survey, institutional
investors in India are increasingly taking environmental, social, and governance
aspects into account when making investment decisions. This study is pertinent
because it sheds light on how ESG aspects are becoming more significant for
institutional investors in India and because it can assist mutual fund managers in
better understanding institutional clients' preferences.
Sengupta and Chakrabarti (2020) analysed the impact of ESG factors on the
valuation of Indian firms. According to the study, ESG considerations play a
significant role in determining firm valuation in India as seen by the fact that
companies with higher ESG scores typically have higher valuation multiples. This
study is pertinent because it sheds light on the possible valuation advantages of ESG
investment and can help mutual fund managers choose businesses that exhibit high
ESG performance.
Roy and Chatterjee (2020) investigated the connection between Indian company
CSR policies and ESG variables. The study's findings, which suggest that ESG
investing might improve the general sustainability of corporate practises in India,
show that businesses with excellent ESG performance typically have superior CSR
practises. This study is important because it sheds light on the potential advantages of
ESG investment for advancing sustainable business practises and because it can help
mutual fund managers choose businesses that perform well in terms of ESG and CSR.
Gupta et al. (2021) examined the impact of ESG factors on the sustainability
reporting practises of Indian firms. The study's findings, which suggest that ESG
investing can encourage greater openness and accountability in corporate reporting
processes in India, show that businesses with excellent ESG performance typically
have stronger sustainability reporting methods. This study is important because it
demonstrates the potential advantages of ESG investment for upgrading corporate
reporting procedures and because it can help mutual fund managers choose businesses
that perform well in ESG and sustainability reporting.
Agarwal et al. (2021) examined the performance of ESG mutual funds in India
compared to conventional mutual funds. According to the study, risk-adjusted returns
for ESG funds were higher than those for conventional funds, proving that ESG
investing can improve financial outcomes for investors. This research is important
because it advances understanding of the financial performance of ESG mutual funds
and draws attention to the potential advantages of ESG investment.
Chandrakar and Asolekar (2021) did another study to examine how Indian
investors see ESG investing. According to the survey, Indian investors are becoming
more interested in ESG investing as a result of worries about corporate governance,
social responsibility, and climate change. This study is relevant because it sheds light
on how Indian investors feel about ESG investing and can help mutual fund managers
better understand their clients' preferences so they can adjust their investment
strategies.
Gupta and Jain (2021) looked at the effect of ESG investing on Indian business
financial performance. According to the survey, companies with strong ESG
performance outperformed those with bad ESG performance financially. This study is
pertinent because it emphasises the potential advantages of ESG investment for both
investors and the businesses in which they invest.
Bose and Das (2021) explored the relationship between ESG disclosure and corporate
financial performance in India. According to the report, businesses with superior ESG
disclosure procedures typically perform better financially. The potential benefits of
ESG disclosure for corporate financial performance are highlighted in this study,
which is pertinent since it can help mutual fund managers choose businesses that have
effective ESG disclosure procedures.
Sharma and Tiwari (2021) examined the impact of ESG factors on the risk-return
tradeoff of Indian mutual funds. According to the study, mutual funds with high ESG
ratings typically have greater risk-adjusted returns than those with poor ratings,
suggesting that ESG investing can offer a better balance between risk and return. This
study is important because it sheds light on the potential advantages of ESG investing
for attaining a better risk-return trade-off and can help mutual fund managers create
investment strategies that strike a balance between risk and profit while also
supporting sustainable company practises.
Singh, N. P., & Verma, R. (2021) This study looks into the connection between
listed Indian companies' financial success and ESG disclosures. For the years 2014
through 2019, the authors gathered information from 89 companies listed on the
National Stock Exchange (NSE). Regression analysis was utilized in the study to look
at how ESG disclosure affected financial performance. The results show that ESG
disclosure and financial performance have a positive association. In order to draw in
investors who are interested in ESG concerns, the authors contend that corporations
must increase the transparency of their ESG disclosures.
Iyengar, R., & Jayaraman, S. (2020) This study looks at how Indian enterprises'
market outcomes are affected by their corporate social responsibility (CSR). For the
years 2011 to 2017, the authors gathered data from 536 companies listed on the NSE.
Regression analysis was employed in the study to investigate the connection between
CSR and market outcomes. The findings demonstrate the beneficial effects of CSR on
market outcomes including market value and financial performance. The authors
contend that companies in developing nations like India can benefit from CSR when
employed as a strategic tool.
Yadav, S., & Goyal, R. K. (2021) This study examines the impact of ESG factors on
the Indian financial market. The NSE provided the writers with data spanning the
years 2016 through 2020. Regression analysis was utilized in the study to look at the
connection between ESG variables and stock performance. The results show a
favorable correlation between ESG variables and stock returns. According to the
authors, investors can use ESG variables to choose more wisely which investments to
make in the Indian financial market.
Sahay, A., & Manchanda, V. (2020) This study investigates how Indian companies'
financial performance is affected by ESG ratings. For the years 2016 to 2018, the
authors gathered data from 68 companies listed on the NSE. The study conducted a
regression analysis to look at the connection between financial performance and ESG
rating. The findings indicate a favorable correlation between ESG rating and financial
performance. The authors contend that in order to boost their financial success and
draw in socially conscious investors, businesses should concentrate on ESG concerns.
Ghosh, A., & Dutta, A. (2020) this study looks at how corporate social responsibility
(CSR) affects Indian firms' performance in emerging markets. The study indicates
that CSR has a favorable and significant influence on company performance as
evaluated by return on assets (ROA) and Tobin's Q using a sample of 300 Indian
firms from 2013 to 2018. According to the authors, businesses in developing nations
like India should think about using CSR as a tactical instrument to improve their
financial success.
Krishnan, M. S., & Ramakrishnan, K. (2020) This study looks into how India's
portfolio diversification practices relate to environmental, social, and governance
(ESG) issues. The authors find that ESG factors enhance portfolio diversification in
the Indian stock market using data from the years 2013 to 2018. According to the
authors, ESG investing can be a useful tactic for Indian investors trying to diversify
their portfolios.
Chowdhury, R. A., & Rangarajan, K. (2020) This study uses a sample of 250 retail
investors to examine the factors that influence socially responsible investing (SRI) in
India. The most significant factors influencing SRI in India, according to the authors,
are social justice, environmental concerns, and ethical considerations. The report also
reveals that SRI investment is more prevalent among younger, female, and educated
investors. The authors contend that the results can influence SRI product marketing
plans in India.
Mukherjee, D., & Chakraborty, I. (2019) This study investigates the extent and type
of greenwashing activities in India by studying the communication of environmental
claims by Indian enterprises. The authors found that 40% of the organizations engage
in some type of greenwashing using a sample of 100 enterprises from the
manufacturing and service sectors. The authors advise consumers and regulators to
exercise greater vigilance in identifying and punishing greenwashing activities in
India.
Singh, P., & Marisetty, V. B. (2020) This study looks into how board diversity and
environmental, social, and governance (ESG) performance in India relate to one
another. The authors conclude that board gender diversity has a favorable and
significant influence on ESG performance using a sample of 200 Indian companies
from 2013 to 2017. According to the authors, increasing board diversity is something
Indian companies should work toward doing in order to improve their ESG
performance.
3.3. Conclusion
A variety of subjects relating to ESG practises and sustainable investing in India are
covered in the books we reviewed. Investor interest in ESG factors is rising as more
businesses attempt to incorporate sustainability into their business models. The books
offer detailed instructions on how investors and businesses can include ESG aspects
into their decision-making processes and discuss the difficulties and advantages of
doing so.
Several books emphasise the value of standardisation and transparency in this field by
concentrating explicitly on ESG frameworks, data, and metrics. Several works
explore how investors can promote sustainable company practises and how
investments may be compatible with individual beliefs and objectives.
Overall, the books highlight the significance of ESG factors and sustainable investing
for Indian investors and businesses. Investors and businesses can build long-term
value and contribute to a more sustainable future by incorporating ESG aspects into
their decision-making processes.
In summary, the literature study offers insightful information about the potential
advantages of ESG investing in India. According to the studies we reviewed, ESG
investing can increase the overall sustainability of corporate practises, encourage
greater accountability and transparency in corporate reporting practises, produce
profitable financial results while also managing risks, and enhance corporate financial
performance. The surveys also indicate that Indian investors are becoming more
interested in ESG investing as a result of worries about corporate governance, social
responsibility, and climate change. Mutual fund managers can use these findings as a
reference for choosing businesses with good ESG performance, sustainability
reporting procedures, and ESG disclosure procedures, as well as when creating
investment strategies that strike a balance between risk and return.
Overall, the examined literature emphasises the significance of ESG investment for
encouraging sustainable company practises and producing profitable results for Indian
investors. As ESG investing continues to gather momentum globally, it is crucial for
mutual fund managers to stay up-to-date with the latest research in this field and
integrate ESG elements into their investment processes.
Chapter Bibliography
1) Ravi, A., & Satpathy, S. (2021). Investment Behaviour of Indian Institutional
Investors towards Environmental, Social and Governance (ESG) Factors: An
Empirical Study. International Journal of Sustainable Development & World
Ecology.
2) Sharma, P., & Tiwari, A. K. (2021). Impact of ESG factors on the risk-return
tradeoff: evidence from Indian mutual funds. Environmental Science and
Pollution Research
3) Bose, S., & Das, R. (2021). The relationship between ESG disclosure and
corporate financial performance: empirical evidence from India. Journal of
Sustainable Finance & Investment
4) Gupta, P., & Jain, K. (2021). Impact of ESG Investing on Financial
Performance: Evidence from India. Global Business ReviewChandrakar, R., &
Asolekar, S. R. (2021). Investigating Indian investors' perception of ESG
investing. Social Responsibility Journal,
5) Agarwal, S., Bhatnagar, S., & Verma, A. (2021). Performance Comparison of
ESG and Conventional Mutual Funds in India. Journal of Business Ethics
6) Gupta, S., Sareen, S., & Bhatia, S. (2021). Impact of ESG Factors on
Sustainability Reporting Practices: Evidence from India. Sustainability,
7) Roy, M., & Chatterjee, D. (2020). Corporate social responsibility and ESG
variables: An empirical study on Indian firms. Management of Environmental
Quality: An International Journal
8) Sengupta, P., & Chakrabarti, R. (2020). Impact of ESG factors on firm
valuation: Evidence from India. Journal of Cleaner Production
9) Ravi, S., & Satpathy, S. (2021). The investment behaviour of institutional
investors towards ESG factors in India. Environmental Science and Pollution
Research
10) Kumar, N., & Kumar, P. (2021). Impact of Environmental, Social and
Governance (ESG) Factors on the Performance of Indian Mutual Funds.
Journal of Financial Regulation and Compliance.
11) Bagri and Singh (2021). "ESG Investing and Risk-Return Tradeoff: Evidence
from Indian Mutual Funds." Journal of Business Ethics.
12) Indian School of Business (ISB). (2019). ESG Integration in Indian Mutual
Funds. ISB InsIght.
13) S&P Dow Jones Indices. (2019). The S&P BSE 100 ESG Index Methodology.
S&P Dow Jones Indices.
14) MSCI ESG Research. (2020). ESG Characteristics of Indian Corporates.
MSCI ESG Research.
15) Morningstar. (2021). India Sustainable Investing Landscape. Morningstar.
16) Goyal, A., & Verma, H. R. (2020). COVID-19 and Performance of ESG
Mutual Funds in India. Asian Journal of Sustainability and Social
Responsibility.
17) "Sustainable Investing: A Path to a New Horizon" by Gaurav Trivedi and
Sumit Kulshreshtha (2021)
18) "ESG: Environmental, Social and Governance in India" by Bala G. Dharan
and Anand Ramanathan (2019)
19) "The Sustainability Edge: How to Drive Top-Line Growth with TripleBottom-Line Thinking" by Suhas Apte and Jagdish N. Sheth (2014)
20) "The ESG Factor: A Handbook for Responsible Investors" by R. S. Sharma
and J. J. Irani(2021)
21) "ESG Metrics for Corporate Sustainability Reporting" by Ravi Kanbur and
Prabhu Pingali (2021)
22) "Investing with Purpose: Capitalize on the Time and Money You Have to
Create the Tomorrow You Desire" by Mark Aardsma (2018)
23) "Sustainable Development Goals and Corporate Social Responsibility: A
Comparative Study of India and China" by Mridula Mishra (2019)
24) Singh, N. P., & Verma, R. (2021). ESG Disclosures and Performance: A
Study of Indian Listed Companies. Journal of Business Ethics
25) Iyengar, R., & Jayaraman, S. (2020). Corporate social responsibility and
market outcomes: Evidence from India. Journal of Cleaner Production
26) Sahay, A., & Manchanda, V. (2020). ESG rating and its impact on financial
performance: evidence from India. International Journal of Sustainable
Development & World Ecology
27) Ghosh, A., & Dutta, A. (2020). Corporate social responsibility and financial
performance: Evidence from India. Journal of Cleaner Production,
28) Krishnan, M. S., & Ramakrishnan, K. (2020). Environmental, social and
governance factors and portfolio diversification: Evidence from India. Journal
of Cleaner Production
29) Chowdhury, R. A., & Rangarajan, K. (2020). Factors influencing socially
responsible investment in India: An empirical analysis. Journal of Cleaner
Production,
30) Mukherjee, D., & Chakraborty, I. (2019). Greenwashing activities in India: A
study of environmental claims communication. Journal of Cleaner Production,
31) Singh, P., & Marisetty, V. B. (2020). Board gender diversity and
environmental, social and governance performance in India. Journal of
Cleaner Production
CHAPTER 4 : Data Analysis, Interpretation
4.1 An Overview of ESG Mutual Funds in India
Assets under Management
Overall fund size growth has hit a bump as new launches dried up. (Rs Crore)
There were many new fund offers between 2019 and 2021, which contributed
significantly to the rise of ESG mutual funds. At that time, people swarm to these
funds since the perception is that asset value moves up after the introduction. The
traction has not been as strong this year due to the decrease in NFOs.
In India, ESG funds were available long before there was any demand.
Comparatively, institutional investors like pension and sovereign funds drove the
conversation around ESG forward globally.
In India, the situation was reversed. Investors. The investor hadn't truly come to
request an ESG product. Fund managers were more responsible for establishing the
significance of the ESG theme.
ESG Mutual Fund Flows
Large net inflows have only come in months where new fund offers were launched.
(Rs Crore)
Low appetite brought on by ignorance is only one element, though. The majority of
ordinary investors are more concerned with returns.
ESG Funds And Returns
Simply said, ESG mutual funds don't have a long enough history of reliable returns.
Only one ESG mutual fund saw returns over the past year. On of September 28, the
rest saw losses of 4% to 15%. All schemes, with the exception of two,
underperformed the benchmark Nifty 50 and the more comprehensive Nifty 500.
Market volatility has undoubtedly been caused by growing inflation, central bank
policy tightening, and commodity price
Underperformance
The majority of ESG fund schemes have underperformed the benchmark Nifty50 and
the more comprehensive Nifty500 index. (1-year returns)
Investors won't be ready to accept lower performance in order to comply with ESG.
Yet, asset managers claimed that investors who are new to ESG have different
expectations. Investors that entered the global ESG market had as their primary goal
creating a sustainable portfolio that was in line with their worldview Those
intangibles were given precedence above performance.
Portfolio Concentration
Retail investors' second reservation about ESG funds is that they do not provide a
significant departure from current investment options. Stocks in the banking, financial
services, information technology, and consumer staples sectors make up the majority
of the funds' holdings because these businesses typically have higher ESG ratings. It
and the benchmark Nifty 50 are extremely comparable.
Concentrated Portfolios
Financial and technology stocks tend to dominate holdings of ESG mutual funds.
They have few options because the majority of companies involved in sustainability
and the green economy are underrepresented on the public market. And one method is
to gain exposure to international stocks in that sector. A greater regulatory
streamlining of ESG will increase the number of renewable and new economy
enterprises that list during the following two years. And that will increase the universe
of investments. Also, funds will have a track record of around three to four years,
enabling investors to evaluate them more effectively. The market regulator has to
have a separate subcategory for ESG funds in light of the 2017 reclassification of
mutual funds. These programmes are currently classified as "thematic" money. SEBI
has already suggested new regulations to deal with this.
Comparing the success of ESG mutual funds with a one- to two-year track record to
conventional schemes, which have been around for much longer, is not really fair. We
will have better insight once we have seen this (ESG) over a whole market cycle.
Paying out on these things takes a little longer. In India, the process of implementing
the cycle It is in the developing phase
4.2. Comparitive Analysis of Nifty100 ESG Index and Nifty 100
Index
Using data as of February 28, 2023
The Environmental, Social, and Governance (ESG) risk score is used to create the
Nifty100 ESG Index, which is intended to reflect the performance of the companies
included in the Nifty 100 index. Each index constituent's weight is determined by its
free float market capitalization and modified ESG risk score, which is skewed based
on the ESG risk score given to the firm.
The index is used for many different things, including benchmarking, making index
funds, ETFs, and structured products.
The top 100 companies from the Nifty 500 are represented by the Nifty 100 Index.
The goal of this index is to gauge the performance of big market cap corporations.
The Nifty 100 monitors the performance of the combined portfolio of the Nifty 50 and
Nifty Next 50 indices.
The level of the index indicates the total free float market value of all the stocks
included in the index in relation to a specific base market capitalization value. This
method is used to calculate the Nifty 100.
The Nifty 100 Index is used for several things, including creating index funds, ETFs,
and structured products as well as benchmarking fund portfolios.
Nifty100 ESG Index
Portfolio
Sector Representation
Characteristics
Top constituents by weightage
Nifty100 Index
Portfolio Characteristics
Sector Representation
Top constituents by weightage
Comparison of Returns of Nifty100 ESG Index and Nifty100 Index
Nifty100 ESG Index
Nifty100 Index
Based on the provided data, we can observe the following comparative analysis
between Nifty100 ESG Index and Nifty 100:
Returns for the QTD and YTD periods are negative for both the Nifty100 ESG
Index and the Nifty 100, with the Nifty100 ESG Index posting marginally worse
returns than the Nifty 100..
1. 1-Year Returns: The Nifty100 ESG Index has a better total return than the
Nifty 100, although having a lower price return. This shows that, when total
returns are considered and dividends or other payments are taken into account,
the Nifty100 ESG Index has outperformed the Nifty 100.
2. 5-Year Returns: Both in terms of price return and total return, the Nifty100
ESG Index has stronger 5-year returns than the Nifty 100. This means that
over the long term, Nifty100 ESG Index has outperformed Nifty 100.
3. Since Inception Returns: In terms of price return, the Nifty100 ESG Index has
somewhat lower returns than the Nifty 100, but greater returns in terms of total
return. This suggests that, after accounting for dividends or other payments,
the Nifty100 ESG Index has produced greater returns than the Nifty 100 since
its inception.
4. 1-Year Returns: The Nifty100 ESG Index has a better total return than the
Nifty 100, although having a lower price return. This shows that, when
comparing total returns, the Nifty100 ESG Index has outperformed the Nifty
100.
Overall, the comparative research shows that Nifty100 ESG Index has outperformed
Nifty 100 over the long term (1 year, 5 years, and since inception) when total returns
are taken into account, though it has outperformed Nifty 100 in the short term (QTD
and YTD). Due to its emphasis on environmental, social, and governance (ESG)
considerations, the Nifty100 ESG Index may offer investors seeking sustainable
investing choices a better choice. It is crucial to remember that past performance does
not guarantee future outcomes, therefore before making an investment decision,
investors should always do their own research.
Comparison of Std. Deviation, Beta and Correlation of Nifty100 ESG
Index and Nifty100 Index
Nifty100 ESG Index
Nifty100 Index
Based on the provided statistics, we can observe the following comparative analysis
between Nifty100 ESG Index and Nifty 100:
Standard Deviation: The standard deviation serves as a gauge for the index returns'
volatility. The fact that the standard deviation of the Nifty100 ESG Index is
marginally lower than that of the Nifty 100 for each of the three time periods shows
that it has been less volatile than the Nifty 100.
1. Returns over a one-year period: The Nifty100 ESG Index has a larger return
than the Nifty 100, and its standard deviation of 15.34 suggests a relatively
low level of volatility.
2. With a standard deviation of 19.08, which is higher than that of the 1-year
returns, the Nifty100 ESG Index has a poorer return over the course of five
years compared to the Nifty 100. This shows that during the past five years,
the Nifty100 ESG Index has become more volatile.
3. Returns since Inception: The Nifty100 ESG Index has a lower return than the
Nifty 100, with the biggest standard deviation (22.00) of the three time
periods. This suggests that since its debut, the Nifty100 ESG Index has seen
more volatility.
Overall, the comparison research indicates that the Nifty100 ESG Index has seen less
volatility than the Nifty 100, particularly over the past year. But during the past five
years and ever since it began, the Nifty100 ESG Index's volatility has increased. It is
crucial to remember that lower volatility does not always equate to better
performance, and before making an investment decision, investors should always take
other aspects like diversification and risk tolerance into account.
Beta: The sensitivity of an index to movements in the general market is measured by
beta. A beta of 1 means that the index moves in lockstep with the market; a beta of
less than 1 means that the index is less sensitive to market changes, and a beta of more
than 1 means that the index is more sensitive to changes in the market. The fact that
the beta of the Nifty100 ESG Index is marginally lower than that of the Nifty 100 for
each of the three time periods shows that it is marginally less susceptible to market
fluctuations than the Nifty 100.
1. 1-Year Returns: The Nifty100 ESG Index has a beta of 0.98, which is
significantly lower than the Nifty 100 and indicates that it has shown slightly
less susceptibility to market changes over the past year.
2. 5-Year Returns: The Nifty100 ESG Index has a beta of 0.96, which is
significantly lower than the Nifty 100, meaning that over the past five years it
has shown slightly less vulnerability to market changes.
3. Since Inception Returns: The Nifty100 ESG Index has a beta of 0.99, which is
a touch lower than that of the Nifty 100, indicating that it has shown a bit less
sensitive to market swings over time.
Overall, according to the comparative analysis, the Nifty100 ESG Index has
demonstrated a little bit less vulnerability to market fluctuations than the Nifty 100.
Investors looking for market exposure with somewhat fewer risk may find this to be
appealing. Beta, however, should be taken into account with other criteria including
diversification, risk tolerance, and investing objectives in addition to being just one
measure of risk.
Correlation: Correlation is a measure of the degree to which two indices move in
relation to each other. Perfect positive correlation is shown by a correlation of 1,
perfect negative correlation is indicated by a correlation of 1, and no correlation is
indicated by a correlation of 0. As can be seen, there is a strong correlation between
the Nifty100 ESG Index and the Nifty 50 for each of the three time periods, with
correlation values of 0.96, 0.98, and 0.98, respectively. Similar to Nifty 50, Nifty 100
likewise shows high correlation, with correlation coefficients of 0.99, 1.00, and 1.00
for the three time periods, respectively.
Comparative Analysis: According to the comparative analysis, the Nifty100 ESG
Index and the Nifty 100 have both shown strong positive correlations with the Nifty
50 during the past year, five years, and ever since they were founded. This suggests
that both indices follow the general trend of the Nifty 50, which represents the larger
market. For the 1-year and 5-year periods, however, we can also see that the
correlation of the Nifty100 ESG Index with the Nifty 50 is a little bit lower than that
of the Nifty 100, suggesting that the Nifty100 ESG Index may have shown a little bit
less sensitivity to market movements than the Nifty 100 over these time periods.
Overall, the comparison research indicates that both the Nifty100 ESG Index and the
Nifty 100 have shown strong positive correlation with the Nifty 50, indicating that
they frequently move in tandem with the market as a whole. Nifty100 ESG Index may
have shown slightly lesser susceptibility to market fluctuations than Nifty 100 during
these time periods, according to the modest difference in correlation between
Nifty100 ESG Index and Nifty 100 over the 1-year and 5-year periods.
Comparison of Fundamentals of Nifty100 ESG Index and Nifty100
Index
Nifty100 ESG Index
Nifty100 Index
The provided fundamentals suggest the following comparative analysis between
Nifty100 ESG Index and Nifty 100:
Price-to-Earnings Ratio: The price-to-earnings (P/E) ratio, a popular valuation tool,
contrasts the current market price of a stock or index with its earnings per share.
(EPS). A higher P/E ratio suggests that the market is prepared to pay more for each
unit of profits, which may be a sign of more optimistic investor sentiment or higher
growth forecasts. We can observe that the P/E ratio for the Nifty100 ESG Index is
greater than the P/E ratio for the Nifty 100, which is 25.38. According to this, the
Nifty100 ESG Index is trading at a higher price per unit of earnings than the Nifty
100.
P/B Ratio: The price-to-book (P/B) ratio contrasts a stock's or index's market value
with its book value. (i.e. its assets minus liabilities). A greater P/B ratio might be a
sign of more optimistic investor sentiment or stronger growth prospects. We can
observe that the P/B ratio of the Nifty100 ESG Index is 5.01, which is greater than the
P/B ratio of the Nifty 100, which is 4.1. This indicates that the Nifty100 ESG Index is
trading at a greater price per unit of book value than the Nifty 100.
Dividend Yield: A measure of an index's cash flow as a proportion of its current
market price is called dividend yield. A greater dividend yield may signal increased
cash flows or decreased market values. We can observe that the dividend yields of the
two indices are comparable, with the Nifty100 ESG Index yielding 1.52% and the
Nifty 100 yielding 1.49%.
Overall, the comparative research indicates that the Nifty100 ESG Index has higher
P/E and P/B ratios than the Nifty 100, indicating that the market is prepared to pay a
higher price for each unit of earnings and book value for the Nifty100 ESG Index than
for the Nifty 100. However, both indices have comparable dividend yields, indicating
that, in relation to their present market prices, they produce comparable cash flows.
4.3 Data from NGOs and social impact organizations on ESG mutual
funds in India
Responsible investment strategies that take into account ESG variables have been
promoted by Oxfam India, a renowned NGO fighting poverty and injustice in India.
In its paper, "Risky Business: Why ESG Matters to India's Investing Future," Oxfam
India emphasises the significance of ESG factors for Indian investors, particularly
mutual funds. The paper offers information on the dangers of investing in businesses
that ignore ESG considerations and how these dangers can affect financial results.
Case studies of businesses that have successfully incorporated ESG elements into
their operations are also included.
In India, ESG has also been a focus of the Center for Social Markets, a nonprofit
organisation dedicated to promoting sustainability. The Centre for Social Markets has
created a sustainability index for Indian corporations that takes ESG variables into
account in partnership with the Bombay Stock Exchange. Investors can use the index
to find businesses that are dedicated to sustainability and ESG principles. A
framework for ESG reporting for Indian enterprises has also been developed by the
Centre for Social Markets, which can aid investors in making wise choices.
The reports released by the Association of Mutual Funds in India are a significant
source of data about ESG mutual funds in India (AMFI). The AMFI, a self-regulatory
body for the Indian mutual fund sector, has been pushing ethical investing principles,
including ESG factors. Reports on the performance of mutual funds in India,
including those that take ESG aspects into account, are published by the AMFI. These
studies offer information on the performance of ESG mutual funds in India as well as
on market trends and obstacles for ESG investing.
The top Indian asset management companies, including SBI Mutual Fund, HDFC
Mutual Fund, and ICICI Prudential Mutual Fund, also produce research studies and
whitepapers that investors can review. These reports include information on the
performance, ESG policies, and investing strategies of mutual funds administered by
these companies.
As a result, there is a lot of data on ESG mutual funds in India, including information
from regulatory agencies, NGOs, social impact organisations, and asset management
companies. Investors can influence the expansion of ethical investment practises in
India by accessing and evaluating this information to make well-informed decisions.
4.8. Investment strategies and portfolio construction of ESG mutual
funds in India and compare them with international best practices
Investment Strategies of ESG Mutual Funds in India:
In India, ESG mutual funds typically combine exclusionary and inclusionary policies.
Exclusionary tactics involve excluding businesses that don't adhere to a set of ESG
standards. Contrarily, inclusionary strategies aggressively invest in businesses that
adhere to particular ESG standards.
The majority of ESG mutual funds in India combine both approaches, with a focus on
exclusionary screening. For instance, funds might bar businesses engaged in
contentious industries like the production of tobacco, alcohol, or weapons.
Furthermore, they might eliminate businesses with a bad track record in terms of ESG
factors, such as those with excessive carbon emissions, subpar labor standards, or a
history of regulatory infractions.
Investment in firms that exhibit superior ESG performance in comparison to their
competitors is a common component of inclusionary strategies in ESG mutual funds
in India. Funds might, for instance, invest in businesses with strong environmental
policies, ethical social standards, and open governance.
ESG mutual funds in India place a strong emphasis on interacting with businesses to
enhance their ESG practices. Engaging with businesses to understand their ESG
policies and practices, urging them to adopt better ESG practices, and employing
shareholder activism to sway corporate behavior are all parts of this strategy.
The small pool of ESG-compliant businesses presents one of the difficulties for ESG
mutual funds in India. There are many businesses that adhere to some ESG standards,
but it's rare to find one that satisfies all three (environmental, social, and governance)
standards. This may reduce the portfolio diversification of ESG mutual funds and
perhaps raise concentration risk.
ESG mutual funds in India may use a variety of tactics to address this issue, including
investing in businesses that are advancing their ESG objectives or businesses that
have a long-term commitment to ESG principles.
When building their portfolios, ESG mutual funds in India also take financial
considerations into account. They seek out businesses with the potential for long-term
growth and strong financial standing. This is due to the fact that ESG elements have
the potential to significantly affect a company's financial performance and that over
the long run, organizations with good ESG performance are more likely to outperform
their competitors.
In conclusion, exclusionary and inclusionary tactics are combined by ESG mutual
funds in India, with a focus on exclusionary screening. They choose the companies
for their portfolios based on certain ESG criteria, such as environmental, social, and
governance considerations. Even though ESG mutual funds in India have advanced
significantly in recent years, there is still much opportunity for development in terms
of portfolio diversification, involvement with firms, and ESG screening procedures.
However, the market is quickly changing, and investors are becoming more interested
in ESG investing. As a result, in the upcoming years, ESG mutual funds in India are
probably going to develop and embrace best practices from international markets.
Portfolio Construction of ESG Mutual Funds in India:
The portfolios of ESG mutual funds in India are often built utilizing a combination of
top-down and bottom-up strategies. In the top-down strategy, the fund manager starts
with macroeconomic variables and market trends before choosing businesses within
those sectors that adhere to ESG standards. The fund manager examines individual
firms using the bottom-up strategy, then builds a portfolio based on their ESG
performance and financial prospects.
In India, ESG mutual funds might also combine active and passive investment
techniques. A fund manager using an active strategy will base investment choices on
their ESG analysis and other financial indicators. A passive strategy, on the other
hand, invests in a pre-selected group of businesses or an index that satisfies particular
ESG standards.
Environmental factors: Companies that have a low carbon footprint, use renewable
energy sources, or have a sustainable supply chain.
Social factors: Companies that promote diversity, have good labor practices, and
engage in philanthropic activities.
Governance factors: Companies with transparent and accountable governance
structures, independent boards, and effective risk management policies.
Diversification is a key component of portfolio creation in Indian ESG mutual funds.
Although there may be a small number of ESG-compliant companies, funds aim to
diversify their holdings to lower concentration risk. Investing in businesses across
various industries, regions, and market caps can be considered a kind of
diversification.
Indian ESG mutual funds also take into account how their investments may affect
society and the environment. They might make investments in businesses that
advance sustainable development or benefit society. Additionally, they might refrain
from making investments in businesses that harm society or the environment, such
those that exploit fossil fuels or violate human rights.
Finally, ESG mutual funds in India also monitor the ESG performance of the
companies in their portfolios and engage with them to improve their ESG practices. In
order to do this, shareholders must file resolutions, vote on corporate resolutions, and
have ongoing conversations with the company's management.
In conclusion, ESG mutual funds in India build their portfolios by choosing
businesses that satisfy particular ESG standards and have promising financial futures.
To lessen the risk of concentration, they combine top-down and bottom-up strategies,
active and passive tactics, and diversification. They interact with businesses to
enhance their ESG practices and take into account how their investments will affect
society and the environment.
Comparison with International Best Practices:
One area where ESG mutual funds in India lag behind their international counterparts
is the level of disclosure and transparency. ESG mutual funds must publish their ESG
screening procedures, engagement initiatives, and the effects of their investments on
society and the environment in developed markets. However, there is no such legal
need in India, and ESG mutual funds frequently give only a few details about their
ESG operations.
The incorporation of ESG elements into investing decision-making is another area
where ESG mutual funds in India may improve. There is still space for improvement
in terms of the breadth and rigor of the ESG analysis, even though the majority of
ESG mutual funds in India employ ESG criteria to choose firms. Best practices from
other markets, such the use of independent ESG ratings or the incorporation of ESG
elements into financial models, can be adopted by ESG mutual funds.
Despite these obstacles, the Indian ESG sector is rapidly developing, and investor
interest in ESG investing is rising. New guidelines for ESG mutual funds have been
been released by the Securities and Exchange Board of India (SEBI), requiring them
to invest in businesses that adhere to particular ESG standards and offer greater
information and transparency. These rules should encourage ESG mutual funds to
follow best practices from other markets and help ESG investment develop in India.
In conclusion, the industry is changing quickly, and there is increasing investor
demand for ESG investment, even if ESG mutual funds in India still have some
catching up to do in terms of implementing global best practices. ESG mutual funds
in India are anticipated to embrace best practices from international markets and
establish themselves as leaders in the ESG investing field as the regulatory framework
and market infrastructure continue to change.
Asset Allocation:
For Indian ESG mutual funds, asset allocation is a crucial component of portfolio
creation. These funds invest in a diverse portfolio of businesses across industries and
market capitalization, albeit the allocation may change depending on the goals of the
investor and the expectations of the fund manager. The fund's ESG criteria, which
evaluate each company's environmental, social, and governance concerns, serve as a
basis for constructing the portfolio.
Given the emphasis on environmental factors, certain ESG mutual funds in India have
a tilt towards specific sectors, such as renewable energy. These funds might favor
businesses that use renewable energy, have a sustainable supply chain, or have low
carbon footprints. Similar to this, certain funds may favor mid- or small-cap
companies due to their emphasis on making investments in businesses with good ESG
credentials.
Given the minimal number of mid- and small-cap companies that are ESG compliant,
ESG mutual funds in India also have a tendency to favor large-cap companies. Due to
the possibility that large-cap companies may already have adequate market coverage
and little room for growth, this may reduce the potential for alpha production.
However, given the increased interest in ESG investment and the rising number of
businesses adopting ESG principles, some ESG mutual funds in India are beginning
to investigate potential in the mid and small-cap segments.
A balance between diversity and ESG criteria must be struck while investing in ESG
mutual funds in India, and asset allocation is a key component of this. Investors can
achieve their financial goals and have a beneficial influence on the environment and
society by investing in a well-diversified portfolio of ESG-compliant firms across
industries and market capitalization.
In conclusion, exclusionary and inclusionary tactics are combined by ESG mutual
funds in India, with a focus on exclusionary screening. They choose the companies
for their portfolios based on certain ESG criteria, such as environmental, social, and
governance considerations. Although ESG mutual funds have advanced significantly
in India over the past several years, there is still much space for development with
regard to their ESG screening procedures, interaction with businesses, performance,
and asset allocation. However, the market is quickly changing, and investors are
becoming more interested in ESG investing. As a result, in the upcoming years, ESG
mutual funds in India are probably going to develop and embrace best practices from
international markets.
CHAPTER 5 : Conclusion
Indian ESG mutual funds invest in companies that are pursuing their ESG goals or
companies that have a long-term commitment to ESG principles.
This is due to the fact that ESG elements have the potential to significantly affect a
company's financial performance and that over the long run, organizations with good
ESG performance are more likely to outperform their competitors.
Even though ESG mutual funds in India have advanced significantly in recent years,
there is still much opportunity for development in terms of portfolio diversification,
involvement with firms, and ESG screening procedures.
However, given the increased interest in ESG investment and the rising number of
businesses adopting ESG principles, some ESG mutual funds in India are beginning
to investigate potential in the mid and small-cap segments.
The comparative research shows that the Nifty100 ESG Index has outperformed the
Nifty 100 over the long term (1 year, 5 years, and since inception) when total returns
are taken into account, but has outperformed Nifty 100 in the short term (QTD and
YTD). Due to its emphasis on environmental, social, and governance (ESG)
considerations, it may offer investors seeking sustainable investing choices a better
choice. However, lower volatility does not always equate to better performance, and
investors should take other aspects like diversification and risk tolerance into account
when making an investment decision. Both indices have strong positive correlation
with the Nifty 50, indicating that they frequently move in tandem with the market as a
whole.
In conclusion, the research paper's goals were met and it covered the subject of ESG
investing in India. Examining and contrasting the performance of ESG mutual funds
in India with conventional investment options has shown their ability to offer
competitive financial returns while also advancing sustainable and socially
responsible investing strategies.
Additionally, the difficulties ESG mutual funds in India confront have been noted,
and solutions have been put up. The potential of ESG mutual funds as a sustainable
investment choice for both retail and institutional investors in India has been
examined in this study, with a focus on the need for increased investor awareness and
education to support the expansion of ESG investing in the nation.
The expansion of ESG investing in India has also been promoted by legal frameworks
and industry norms, which have been analyzed in this study. Analysis and comparison
of ESG mutual fund investment strategies and portfolio development in India with
best practices from around the world have shown the need for increased integration of
ESG variables in investment decision-making processes.
Finally, this research project has looked at how ESG elements affect corporate
financial performance and how it compares to the performance of ESG mutual funds.
Overall, this research report highlights the potential for ESG investing to promote
sustainable growth and development in India while also providing investors who
value ethical and responsible investment practices with competitive financial rewards.
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