What are ESG Funds? Should You Invest in Them?

ESG stands for Environmental, Social and Governance. ESG investing is the essence of sustainable investing. Simply put, it revolves around investing in companies that have upheld E, S and G in conducting business.

The E factor focuses on a company's impact on the environment. What active steps have they taken to reduce carbon emissions, dispose of waste and conserve energy? The S factors on the other hand, highlight the well-being of the company's employees and society at large. In addition, the G factor relate to how well a company complies with the regulations, solves grievances and conducts business ethically. 

So, it is about more than just the bottom line. How actively a company adopts sustainable business practices affects the share price, just as much as the quarterly revenue. Any fraud allegation could just as much topple the share price and reduce the trust of the shareholders.  

What are ESG Funds?

ESG investing has been prevalent for years and is rooted in considering investments' impact on the environment, society and governance. It advocates for companies to embrace greater responsibility and morality concerning the environment and society. Under ESG funds, allocation typically includes investing in the shares and bonds of ESG-compliant companies.

Should you invest in ESG Funds?

Currently, people worldwide recognise the importance of embracing sustainability and how it could bring about positive changes. Similarly, the world of investments has been seeing a change, because people are more aware of our activities on the environment and society. Consequently, ESG investing has emerged.

While ESG investing is still a new concept in India, it has gained momentum in the last few years. For instance, the COVID-19 pandemic played a large role in increasing people's interest in responsible investing. Of course, challenges exist with things like greenwashing, but demand for ESG funds in Asia is growing.

ESG factors have become a regulatory requirement, which have pushed companies to be more sustainable and uphold the well-being of their employees. In the past, we have even seen companies being shut down for not being ESG compliant. So, it is no longer a talking point.

Apart from the regulations, factors like foreign investment and customer perception have also pushed companies to be ESG compliant. Foreign investors are more interested in companies that have embraced the ESG norms, while customers prefer to partner with sustainable brands.

In the long run, investing in ESG Funds makes sense. ESG funds prioritise the companies committed to sustainable resource usage, employee well-being and clean governance, reducing potential risks associated with environmental, social and governance factors. Consequently, investors can avoid companies whose practices pose long-term risks to their investments.

Factoring in ESG criteria extends beyond aligning a company's ethics with investors. It helps investors avoid companies that may face serious challenges due to questionable practices, safeguarding their long-term prospects.

How to invest in ESG Funds?

Investing in ESG Funds is now easier with the convenience of online platforms. 

Here's a step-by-step guide:

Through Internet Banking 

Log in to ICICI Bank Internet Banking

• Navigate to 'Investments and Insurance' and select 'Buy Mutual Funds'

• Choose 'Top categories'

• Select the desired scheme and proceed with your investment

Through mobile

• Log in to ICICI Bank iMobile Pay app

• Go to 'Invest and Insure' and choose 'Mutual Funds'

• Select 'Top categories'

• Pick your preferred scheme and invest seamlessly.

Overview of ICICI Prudential ESG Fund

Investors looking for gains that surpass inflation rates and fixed-income returns should consider ICICI Prudential ESG Fund. It operates as a Thematic ESG fund, offering the fund management team the freedom to invest in companies of varying sizes to maximise gains.

This fund's adaptability makes it an optimal choice for equity fund investors. By delegating stock selection entirely to the fund manager, the fund aligns with the core principle of Mutual Fund investing. It's advisable to invest in this fund through the SIP route, ensuring a systematic and disciplined approach to investing.

Conclusion

ESG investing isn't just about allocating capital to companies that are ethically aligned with investors' values; it's a strategic move towards sustainable growth. As global awareness about environmental and social responsibilities rises, so does the importance of ESG investing.

While India is just starting its journey in ESG investing globally, socially responsible investing has gained considerable traction. The impact of ESG factors on the financial performance of companies has been significant. Studies show that companies demonstrating strong ESG performance have outperformed their counterparts in terms of stock returns, providing a robust case for ESG investments.

ESG funds reduce risks, considering factors potentially harming long-term investment prospects and steering clear of companies that don't align with sustainable practices. As the investment landscape evolves, embracing ESG factors can pave the way for a more responsible and rewarding investment journey.