The assets under management (AUMs) of funds linked to the environmental, social and governance (ESG) theme have seen a fivefold jump in the last four years, reported Business Standard.
The fund size of ESG funds stood at ₹12,447 crore as of March 2022, a massive increase from ₹2,268 crore in March 2019, the data from Morningstar India shows.
What are ESG Funds?
The ESG (Environment, social and governance) funds are thematic funds that invest in socially responsible companies which fulfil their responsibilities towards environment and social causes, and also follow high ideals of corporate governance. These funds are distinct from other funds in a fundamental way. Mutual funds are constituted to earn gains while keeping a low risk, the ESG funds are made with a very different benchmark in mind i.e. the commitment of companies towards society, environment and ethical governance.
In the last few years, several fund houses have focused on launching ESG based funds, to tap into the growing investor interest for sustainable investing. Typically, these funds invest in companies that are focused on conserving the environment, positively impacting communities that they operate in, and conducting business ethically, wrote Business Standard.
Kaustubh Belapurkar, director, manager research, Morningstar India, says, “Globally, flows into sustainable funds continues at a rapid pace, with assets in sustainable funds globally exceeding $2.7 trillion as of December 2021. It’s still early days in India from an ESG perspective, but with the launch of ESG funds in the last few years, there are investable options available for investors. Acknowledging the growing interest around the globe for sustainable investing, the regulator is also looking to frame regulations around sustainable investing and disclosures.”
On an average ESG funds have given returns of around 22 per cent in the last one year, compared to returns from the Sensex of 19.9 percent.
SBI Magnum Equity ESG Fund has assets of over ₹4,582 crore as of March 2022, while Axis ESG Equity Fund has fund size of around ₹1,897 crore, shows the data from Morningstar India.
Although these funds attracted investors attention, they have seen some outflows in the last financial year. Sustainable funds witnessed outflows of ₹315 crore in the financial year 2021-22 (FY22), down compared to ₹4,884 crore in FY21.
“Investors are yet to fully warm up to the concept of sustainable investing. We have observed that most flows into sustainable funds so far have come in during the NFO period. FY21 witnessed significant inflows as there were several ESG Fund launches,” added Belapurkar.