In this article, we will discuss ESG Funds. So, let’s get started.
- It is a kind of Mutual Fund. Its investing is used synonymously with sustainable investing or socially responsible investing.
- Typically, a mutual fund looks for a good stock of a company that has potential earnings, management quality, cash flows, the business it operates in, competition etc.
- However, while selecting a stock for investment, the ESG fund shortlists companies that score high on environment, social responsibility and corporate governance, and then looks into financial factors.
- Therefore, the key difference between the ESG funds and other funds is ‘conscience’ i.e the ESG fund focuses on companies with environment-friendly practices, ethical business practices and an employee-friendly record.
- The fund is regulated by Securities and Exchange Board of India (SEBI).
Factors Behind ESG Growth
- Greater policy focus on aspects such as cleanliness, skill development, expanded healthcare coverage, and education indicates potential public investment in these social development and environmentally sensitive sectors of the economy.
- There is increasing awareness and understanding among younger investors about the impact of business on social development and environment.
- Modern investors are re-evaluating traditional approaches, and look at the impact their investment has on the planet. Thus, investors have started incorporating ESG factors into investment practices.
- The United Nations Principles for Responsible Investment (UN-PRI) (an international organization) works to promote the incorporation of environmental, social, and corporate governance factors into investment decision-making.