India ESG assets up 4.7 times in two years to Rs 12,300 crore, shows data

The size of environment, social, and governance-based fund investments in India from a global sustainability AUM perspective is currently negligible, but has been growing significantly

The assets under management (AUM) of environment, social, and governance (ESG)-based funds have risen 4.7x in two years to over Rs 12,300 crore, from Rs 2,630 crore, in November 2019.

The size of ESG investments in India from a global sustainability AUM perspective is currently negligible, but has been growing significantly. However, the Covid-19 pandemic has augmented the demand for sustainable investing, with seven of 10 ESG funds being launched since January last year, revealed experts.

The aggregate AUM in ESG funds in India as of November 30 was around 0.3 per cent of the mutual fund industry AUM, observed a note by Motilal Oswal Financial Services. 

Canada is a market with the highest proportion of sustainable investment assets at 62 per cent, followed by Europe (42 per cent), Australasia (38 per cent), the US (33 per cent), and Japan (24 per cent). Asia (ex-Japan) has less than 1 per cent share in the sustainable asset pool.

India is trailing with regard to sustainability performance and ranks 120 out of 165 countries in terms of total progress towards achieving all sustainable development goals (SDGs), according to the United Nations (UN) Sustainable Development Report 2021.

"Recently with India committing to a 2070 deadline to achieve net-zero emissions, the progress towards sustainability should gather pace in the coming years,” observed the report.

ESG funds have given average one-year returns of 33.5 per cent, according to Value Research. Since most ESG funds have started lately, it would be premature to evaluate their performance with benchmark indices, according to brokerage Motilal Oswal.

"In developing regions, given the nascent stage of the capital markets, the outperformance of ESG funds should be sharper as the gap in practices between ESG leaders and laggards is larger – and the same should apply to India. This is evident from the sharp outperformance of the MSCI India ESG Leaders Index versus the MSCI India Index since its launch in 2007,” said the brokerage.

Since the launch of 17 SDGs by the UN in 2015, the size of sustainable assets grew multifold at a compound annual growth rate of around 11 per cent between 2016 and 2020 and stood at $35.3 trillion in 2020.

 "In India, ESG is confined to dedicated portfolios right now. Over time, the theme will become part of the fund’s overall strategy, with money flowing to companies that are doing enough to improve on the ESG scores,” said an industry executive.–