Domestic mutual funds join the ESG bandwagon, but it's still early days

Environmental, social, and governance (ESG) investing is in vogue globally. India also is making slow but steady progress on this front. Since October 2020, domestic MFs have launched six ESG-oriented schemes. Such schemes recorded inflows of over Rs 3,700 crore during the second half of 2020-21.
 
Currently, ESG funds have AUM of around Rs 10,500 crore. On an average ESG funds have given returns of around 58.5 per cent in the past year compared to the Sensex’s 55.4 per cent.
 
Usually, these funds invest in companies focused on conserving the environment, positively impacting communities that they operate in, and conducting business ethically.
 
In the past year, Quantum India ESG Equity Fund and SBI Magnum Equity ESG Fund have given returns of 68.6 per cent and 57.7 per cent, respectively, shows the data from Value Research. Strong returns posted by ESG schemes have prompted both fund houses and investors to look at them more seriously. In the last few months, fund houses — such as Invesco, Aditya Birla Sun Life, and Kotak —  have launched ESG-dedicated funds.  During 2020-21, ESG-themed new fund offers (NFOs) accounted for about a tenth of the number of NFOs and an eighth of the amount mobilised by all the NFOs, according to the Sebi data.
 
Industry participants say that disruption due to the Covid-19 highlighted the importance of building sustainable and resilient business models. “While still early days in India from an ESG funds perspective, the launch of ESG funds has increased investor awareness significantly. Many domestic asset managers are already incorporating ESG principles in their overall investing framework,” said Kaustubh Belapurkar, director-manager research, Morningstar India.