What are ESG funds?
Recent issues of corporate governance has led mutual fund houses to launch Environment, Social and Governance (ESG) funds/ socially responsible funds.
There are several ways to do this; at one end is a simple approach where investors exclude stocks with “sin” characteristics; at the other end is impact investing, where investors select stocks with specific characteristics to drive impact, such as gender diversity.
The most common ESG exclusions employed are companies involved in controversial weapons (such as anti-personnel mines, cluster munitions, chemical, or biological weapons), tobacco, and civilian firearms; the underlying principle is things that kill you if used-as-directed. Other exclusions include alcohol and adult entertainment (social), or thermal coal (environmental).
ESG funds are typically underweight in mining, energy and utility sectors, and overweight technology, financial services, and consumer sectors.
Since how long have they been existent?
In developed markets, it has cornered substantial more than 1/5 of investment assets. It commands a sizeable share of assets ranging from 18% in Japan to 63% in Australia and New Zealand. In emerging markets, it is gaining ground.
ESG funds in India
SBI Mutual Fund already has a fund called SBI Magnum ESG Equity Fund (renamed in May 2018 from SBI Magnum Equity Fund which was launched in Jan 1991).
Since inception (Jan 1991), SBI’s ESG Fund has delivered 133.36 percent returns. As on April 30, AUM stood at Rs 2,312 crore. In the last five years, the schemes has registered 14.37 percent returns. According to the portfolio data on Moneycontrol, the open-ended fund has deployed 97.63 percent investment in Indian stocks as in May end, of which 93.27 percent was in large cap stocks and 4.36 percent in mid cap stocks.
Quantum will be the second fund house launching on June 21 after a gap of almost 29 years. Quantum India ESG Equity Fund will be benchmarked against Nifty 100 ESG Total Return Index.
Other fund houses are also contemplating launch of ESG Fund. These funds invest in a diversified basket of companies, following ESG.