Understanding ESG Funds

Greetings,

We hope you found our previous post on open-ended, fixed maturity funds, both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out!

While 2020 ushered in a global crisis on a scale that humanity had never seen before, 2021 continues to teach us hard lessons earned over decades of practicing unsustainable economics. Pollution, strip-mining, deforestation, over-fishing, and hunting animals to extinction are just a few examples of the effect our economies have on the environment. As the world tries to move forward from the mistakes of the past, one of the things we’re trying to focus on is sustainability, and not taking more from the environment than we can put back. This focus is being delivered right at the root of our financial ecosystem by changing the way responsible investors invest their money.

Measuring sustainability

Sustainability today is measured in terms of E, S, and G, which stands for environmental, social, and governance respectively. Organizations that wish to be ESG compliant need to adhere to a stringent set of standards and regulations. While the environment score is determined by carbon footprint and the impact an organization has on the environment, the social aspect pertains to gender equality, social diversity, racial diversity, as well as diversity based on sexual orientation. 

The governance aspect, today, has a lot to do with the ESG data that an organization makes available to the public, the quality of that data, as well as its transparency in operations. This is because financial disclosure and transparency are key aspects of ethical governance and organizations that are in compliance automatically become a much safer choice for investors. Given a choice between full disclosure and ambiguous operations, most investors would choose the former. 

Indian ESG Funds

While assets managed by ESG funds globally reached a total of $1.65 trillion as of the December quarter of 2020, assets managed by ESG funds in India reached about 45 billion INR and continue to grow steadily. This is undoubtedly due to the effect the global pandemic has had on people and businesses around the globe. ESG funds weren’t that common pre pandemic, however, 2020 saw a number of large asset management companies launch ESG schemes in India like the ones listed below.

Aditya Birla Sun Life ESG Fund

1. Started in December 2020 and managed by Mr. Satyabrata Mohanty. 

2. Management is active while investments are 60-80% in large cap and remaining in mid and small caps. 

3. Portfolio is focused 40-50 ESG compliant companies. 

4. The fund retains the right to invest 35% of the fund’s net assets in ESG compliant international securities.

Axis ESG Fund

1. Started in February 2020 and managed by Mr. Jinesh Gopani. 

2. This fund is focused on 52 ESG compliant holdings, the top 5 of which include Bajaj Finance, Kotak Mahindra Bank, HDFC Bank, Avenue Supermarts, and Tata Consultancy Services. 

3. Management is active and return are at 31.20% since the fund’s inception on December 23, 2020. 

4. Investments are 80% in stocks that rate highly on ESG factors. 

 

ICICI Prudential ESG Fund

1. Started on October 2020 and managed by Mr. Mrinal Singh 

2. This fund is focused on 30 ESG compliant holdings, the top 5 of which include HDFC Bank, Kotak Mahindra Bank, Housing Development Finance Corp, Infosys, and Reliance Industries Ltd. 

3. Management is active and return are at 10.90% since the fund’s inception on December 23, 2020.

4. Investment are predominantly in companies with a high ESG score. Stock selection is based on internal research as well as the Nifty ESG universe. The fund also reserves the right to invest in international organizations that are ESG compliant.

SBI Magnum Equity ESG Fund

1. Originally named SBI Magnum Equity Fund, this fund was relaunched as SBI Magnum Equity ESG Fund in May 2018 and managed by Mr. Ruchit Mehta.

2. This fund is focused on 39 ESG compliant holidings, the top 5 of which include HDFC Bank, Infosys, Tata Consultancy Services, Reliance Industries Ltd, and ICICI Bank. 

3. Management is active and returns are at 10.84% as of December 23, 2020. 

4. Investments are 80% in ESG compliant equity, while the remaining 20% in other equities, debt, or money market instruments.

 

Kotak ESG Opportunities Fund

1. Launched on December 2020 and managed by Mr. Harsha Upadhyaya 

2. This fund is focused on 48 ESG compliant holdings including Infosys, Bharti Airtel, HDFC Bank, Tata Consultancy Services, Eicher Motors,Larsen and Tourbo, Axis Bank, Ultratech Cement, Cipla, and more.

3. Investment is 95% in ESG compliant indian stocks, 57.84% of which is in large cap stocks, while 17.95% is in mid cap stocks, and 9.63% is in small cap stocks.

In conclusion, the world has changed in terms of environmental awareness and social consciousness and as responsible citizens of the world it is our duty to follow suit. Please feel free to contact us for more information on investing in ESG funds.