Under the ESG umbrella there are 10 funds available in India, the oldest being SBI Magnum Equity ESG. These funds look for stocks that adhere ESG (environmental, social and governance) principles.
But don’t be under the assumption that they are all similar. Some of the funds have an allowance for global stocks. Some are passive funds. Each have their own market-cap or sector preferences.
Here is a listing (in order of inception date) of the ESG funds available in India. The quotes are from each respective fund manager, unless stated otherwise. The fund names are hyperlinked to the respective fund pages to enable you to obtain more details. The data is as per the February 2021 portfolios.
We looked at the 1-year return since the terrible market crash of March 2020, and the performance has been impressive. But none of them have a long track record, except the SBI ESG fund. Its returns above one year are annualised.
SBI Magnum Equity ESG Fund
- Inception: May 2018 (SBI Magnum Equity Fund was reclassified and repositioned as SBI Magnum Equity ESG Fund)
- Equity holdings: 41
- Top 5 holdings: HDFC Bank, Infosys, TCS, ICICI Bank, Bharti Airtel
- Investment style: Invests a minimum of 80% in stocks fitting ESG criteria and up to 20% in other equities and/or debt and money market instruments.
ESG investing faces its own set of challenges, the primary one is a lack of quality data. In our experience the lack of data has been not because companies don’t have good sustainability practices, it’s just that the disclosures are lacking.
ESG is a much more holistic way of evaluating and protecting investments made. Ultimately it is about the sustainability of a business in an ever-changing world. And as the focus shifts to the longevity of a business (and implicitly the valuation of an enterprise), it is likely that ESG investing becomes more mainstream and much more integrated into the security selection process itself. – Ruchit Mehta
Quantum India ESG Equity Fund
- Inception: July 2019
- Equity holdings: 45
- Top 5 holdings: Infosys, TCS, HDFC, Wipro, Tata Motors
- Investment style: The fund uses its proprietary framework based on ground research in evaluating companies. It aims to find sustainable businesses that are not only environmentally and socially responsible but also make sense as investments to build wealth over the long term.
ESG aspects help us ascertain how prepared companies are to mitigate various material risks and capitalize on opportunities. We do not restrict our research to just self-declared company disclosures. The idea is to develop a truly granular understanding of the extent to which a company will be a good long-term steward of capital. Responsibility and profitability are wholly complementary. – Chirag Mehta
Axis ESG Equity Fund
- Inception: February 2020
- Equity holdings: 51
- Top 5 holdings: Avenue Supermarts, HDFC Bank, Kotak Mahindra Bank, TCS, HDFC
- Investment style: A minimum of 80% of the portfolio is invested in stocks that rate highly on ESG factors. The allocation is based on a detailed review of each company with fundamental analysis.
With all stakeholders such as customers, investors and regulators demanding changes in the way businesses are being run, these non-financial factors are coming into the forefront for most companies. Companies that effectively manage the ESG factors through their corporate actions can provide attractive long term investment opportunities and will face significantly lower disruption risks to their business model. Therefore, companies with strong ESG practices score higher in terms of reputation and carry lower risk probability because they incorporate sustainability as a core value. This translates into steady and more sustainable performance for the business over the years. – Jinesh Gopani
ICICI Prudential ESG Fund
- Inception: October 2020
- Equity holdings: 29
- Top 5 holdings: Infosys, HDFC Bank, TCS, HDFC, Kotak Mahindra Bank
- Investment style: The fund invests in companies with a high ESG score. The stock selection process is based on internal research and from the Nifty ESG universe. The fund can also invest in global firms with a high ESG score.
It is imperative that society also wants to see businesses being more responsible with respect to ESG. This trend is already visible in lending practices and investor participation globally. In India, it is gaining traction and we believe that this focus is only going to grow bigger and deeper. When compared to the developed world in this context, there are a different set of companies and different practices followed. However, access to capital and requirement by customers makes them align to the ESG framework. – Mrinal Singh
Quant ESG Equity Fund
- Inception: October 2020
- Equity holdings: 26
- Top 5 holdings: Bharti Airtel, Fortis Healthcare, Infosys, GIC, Oracle Financial Services Software
- Investment style: Invests in companies by assessing them based on quant’s VLRT+Q2 framework, which is valuation analytics, liquidity analytics, risk appetite analytics, timing coupled with qualitative and quantitative modifications for ESG integration. The fund will invest in 40-60 stocks which comply with ESG framework and can invest up to 35% in overseas stocks that fit ESG criteria.
In India, there’s a long roadmap to ESG integration. With ESG Investing, there has been a unique development and a great learning curve to understand the quantification of non-financial data. The integration of non-financial data will only evolve as sustainable investing becomes a greater part of the investing gamut. – CIO Sandeep Tandon
Mirae Asset ESG Sector Leaders ETF
- Inception: November 2020
- Equity holdings: 51
- Top 5 holdings: HDFC Bank, RIL, Infosys, HDFC, Infosys, TCS
- Investment style: Passively managed with investments in stocks in a proportion that match as close as possible to the weights of these stocks in Nifty 100 ESG Sector Leaders Index.
In the context of India, we have seen time and again how big corporates have failed and their investors have lost their substantial wealth due to poor governance issues, product issues such adulterations in drugs, environmental damages leading to closure of plant, failure of banks internal mechanism to detect fraud, etc. As a result of which investors have started looking at parameters that are beyond the financial statements. Investors need to be aware of greenwashing, where the company claims to be ESG compliant, but it’s not. – CEO Swarup Mohanty
Aditya Birla Sun Life ESG Fund
- Inception: December 2020
- Equity holdings: 40
- Top 5 holdings: HDFC Bank, Axis Bank, Infosys, Bajaj Finance, SBI
- Investment style: A market-cap agnostic portfolio with 60-80% in large caps and the remaining in smaller fare. A focused portfolio of 40-50 ESG compliant companies. The fund can invest in international securities adhering to ESG practices up to 35% of the fund’s net assets.
Governance has always attracted market attention but over time environmental and social aspects will become more crucial as regulators and society demand prudence. Corporate India has enough success stories on ESG where managements have shown deeper commitment towards all stakeholders. Companies following sustainable ESG practices build a long-term enduring business model, which leads to superior risk-adjusted return. - Satyabrata Mohanty
Kotak ESG Opportunities Fund
- Inception: December 2020
- Equity holdings: 49
- Top 5 holdings: HDFC, TCS, Infosys, ICICI Bank, Bharti Airtel
- Investment style: Focus on the ESG principles and disclosures of the investee company with the flexibility of investing across market capitalisation range. The fund will design a portfolio of 40-60 stocks based on ESG Score and its proprietary Business, Management & Valuation (BMV) approach.
The performance of all 3 bottom lines – Profit, Planet (environment), People (social) - are equally important, as against looking at only profit. ESG investment principles look at ‘how companies make money’ and not just at ‘how much money the company makes’. – Harsha Upadhyaya
In March 2021, two ESG funds were launched.