investing with a conscience

investing with a conscience

there is a new trend that has caught on: investing in environmentally and socially responsible businesses with good corporate governance practices. it is popular not just among the younger generation but also among large private equity companies.  

it’s called ESG.

from being a niche practice, ESG investing has grown significantly in recent years and has garnered many backers.

for example, the Principles for Responsible Investing (PRI), a leading group which advocated responsible investing, which came into existence in 2006, has seen the number of signatories double from March 2020 to June 2021. currently, there are over 4,000 signatories who collectively manage over $121 trillion in assets under management (AUM).

likewise, there is the Net Zero Asset Managers initiative launched last December, which aims to align investment portfolios with a ‘net zero’ emissions target. recently, Amundi, Franklin Templeton, and HSBC Asset Management signed up for this initiative and, as of July, it has 128 investors, collectively managing $43 trillion in assets.

in terms of returns, a report by S&P Global Market Intelligence which analysed 26 ESG exchange-traded funds (ETFs) and mutual funds with more than $250 million in AUM found that from March 2020 to March 2021, in the first 12 months of the pandemic, 19 out of the 26 ESG funds performed better than the S&P 500. those outperformers rose between 27.3% and 55% over that period. in comparison, the S&P 500 increased by 27.1%.

the ESG momentum is also picking up in India. most ESG funds in India have been launched post pandemic and possibly have benefitted from the heightened interest in ESG investing. in India, eight ESG funds have launched since 2019 and as of March 2021, the total AUM under such schemes stood at ₹10,473 crore.

the pandemic and growing concerns around climate change have highlighted the need to build sustainable and eco-friendly businesses. and the huge inflow of money in such schemes is a testament of the growing investor interest in ESG as a factor when it comes to investing.