Everything you need to know about ESG investing and why it matters


The social environment and governance or ESG is a form of sustainable investment that measures the impact of a company’s ethical contribution on its stakeholders. ESG investing is based on the idea that only pressure from large investors can force the business world to adopt responsible behavior from a social, environmental and governance point of view.

The environment refers to the use of clean energy, waste management and the conservation of natural resources. It includes the protection of animals. Companies that follow the recovery of energy by natural means in the development of their products, lead to the safety and preservation of our natural resources. Social criteria refer to business relationships. This includes corporate social responsibility and what a company gives back to society from its profits and profitability. It refers to the protection of human capital, human resource rights and community standards and favorable labor policies of company management towards the workforce.

Governance refers to the degree of ethics of management in the conduct of its activities? What are the accounting, tax and management rules followed? Companies that score high on corporate governance are clean and transparent in their books. These companies maintain a good debt ratio.

Some of the parameters taken into account in ESG investing are resilience, resource use, business ethics, human capital and occupational health and safety, land and biodiversity, product governance.

Globally, around $ 2.96 trillion has been invested in funds managed with an ESG approach, according to Morningstar. In India, however, the concept is still emerging. According to a 2019 Morgan Stanley survey, 85% of retail investors are interested in sustainable investing.

ESG in India

The Nifty 100 ESG Index has been designed to reflect the performance of companies in the Nifty 100 Index based on the ESG Score. The Nifty 100 ESG index was found to outperform its parent Nifty 100 index over various periods of 1.3 and one year. The Indian mutual fund industry, always quick to capitalize on such themes, has also launched new funds for investors based on ESG investing.

AND online

Currently, there are three main ESG funds – SBI Magnum Equity ESG, Quantum India ESG Equity and Axis ESG – following the ESG investment strategy in India.

Below is a comparison of them based on risk and reward parameters.

Comparison of ESG fundsAND online

Benefits of ESG investing

Sustainability was once considered for a set of niche investors who wanted to align their investment goals with their personal values ​​and beliefs. By following the ESG method of operating the company; companies are more inclined to shareholder interests. The positive impact on the environment and the social benefits are manifold. He helps in financial advocacy.

According to a study, following ESG practices in an organization led to better operational performance in 88% of companies and better stock market performance in 80% of companies. It has lowered the cost of capital for 90% of businesses. Companies with high suitability scores have shown better operational performance, less investment risk, and greater resilience.

The future is not just a question of profitability. The numbers at the end of the day are deadlocked.

Aspects of knowledge capital, corporate governance and taking into account our resources is a growing interest in protecting our beautiful planet Earth from extinction.

The deadly coronavirus will have many long-term impacts. The physical and mental well-being of our most precious species and its sustainability – need attention. Let us be aware of this.

(The author is the founder of Dlzer Consultants, a Bangalore-based financial planning firm.)

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