The COVID-19 pandemic has been a wake-up call for many investors who realized the importance of environmental, social, and governance (ESG) factors in their financial portfolio management.
If you find investing in ESG funds complex, let us simplify it. ESG investing selects firms or funds that perform well on ESG indicators, such as lowering carbon emissions, improving employee well-being, and assuring ethical governance.
This article will explore the top 5 ESG funds in India and companies in India that you can consider while designing your financial portfolio.
What are ESG funds?
ESG funds are mutual funds that invest in companies that perform well on ESG factors, i.e., Environmental, Social, and Governance (ESG).
ESG factors measure how sustainable and ethical the company’s operations are, such as managing its natural resources, treating its employees and customers, and conducting its business affairs.
ESG or SRI, green, or ethical funds seek to earn financial returns while achieving positive social and environmental outcomes.
ESG funds differ from conventional funds by applying ESG screening or integration methods to select the companies that meet their ESG standards.
ESG Screening
ESG screening excludes companies involved in harmful or controversial activities, such as fossil fuels, tobacco, alcohol, gambling, weapons, or human rights violations.
ESG Integration
ESG integration incorporates ESG factors into companies’ financial analysis and valuation and gives preference to those with higher ESG ratings or scores.
Reasons for the Growing Popularity of ESG Funds in India
As India emerges as a global player, it is keen to witness its evolution through an environmental, social, and governance lens(ESG).
- India is grappling with rapidly worsening air quality that often exceeds international standards. It is directly causing the young and elderly to suffer from numerous respiratory and cardiovascular diseases.
It has triggered an inner awakening in people, prompting them to intentionally support ESG funds and businesses that use eco-friendly practices to lower their carbon impact.
- Enhanced regulatory support from the Securities and Exchange Board of India (SEBI) drives investors towards ESG funds. SEBI recently introduced guidelines that require the top 1,000 companies listed to disclose their ESG-related activities.
This initiative will enhance transparency and encourage companies to improve their ESG performance.
- ESG investing also has a high potential for long-term value generation. The essence of ESG funds is the selection of firms committed to providing excellent risk-adjusted returns over time by producing value for all its stakeholders, employees, customers, shareholders, suppliers, and everyone else in the loop. This article will explore a few good stock recommendations for you.
Top 5 ESG Funds in India
- SBI Magnum Equity ESG Fund
| Incorporated On | 29th June 1987 | ||||
| Rank in ESG Funds (total assets) | 1 | ||||
| AUM (in Crores) | Rs. 8,21,489 Crores | ||||
| Major Investments | HDFC Bank Ltd ( 7.5%)
Infosys Ltd (7.31%) TCS (6.64%) Ultra Tech Cement (3.95%) |
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| Expense Ratio | 1.32% | ||||
| Returns |
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- Axis ESG Equity Fund
| Incorporated On | 4th September 2009 | ||||
| Rank in ESG Funds (total assets) | 7 | ||||
| AUM (in Crores) | Rs. 2,53,477 Crores | ||||
| Major Investments | Torrent Power Ltd ( 6.30%)
Bajaj Finance Ltd (5.17%) Nestle India Ltd (5.11%) TCS Ltd (4.76 %) |
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| Expense Ratio | 1.18% | ||||
| Returns |
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- Kotak ESG Opportunities Fund
| Incorporated On | 05th August 1994 | ||||
| Rank in ESG Funds (total assets) | 5 | ||||
| AUM (in Crores) | Rs. 2,85,392 Crores | ||||
| Major Investments | HDFC Bank Ltd ( 6.82%)
Infosys Ltd (6.75%) TCS Ltd (6.01 %) |
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| Expense Ratio | 0.71 % | ||||
| Returns |
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- Quantum India ESG Equity Fund
| Incorporated On | 19th Sept 2005 | ||||
| Rank in ESG Funds (total assets) | 33 | ||||
| AUM (in Crores) | Rs. 2006 Crores | ||||
| Major Investments | HDFC Bank Ltd ( 7.16%)
TVS Motor Co. Ltd (4.96%) Indian Hotels Co. (3.63 %) |
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| Expense Ratio | 0.83 % | ||||
| Returns |
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- Aditya Birla Sun Life ESG Fund
| Incorporated On | 23rd December 1994 | ||||
| Rank in ESG Funds (total assets) | 4 | ||||
| AUM (in Crores) | Rs. 2,97,412 Crores | ||||
| Major Investments | ICICI Bank Ltd ( 9.52 %)
HDFC Bank Ltd(8.86%) Infosys Ltd (7.31 %) |
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| Expense Ratio | 0.92 % | ||||
| Returns |
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List of Top 5 ESG Companies in India
| Company | Comprehensive ESG Risk Rating | Risk Category |
| HDFC Bank Ltd | 30.8 | High Risk |
| ICICI Bank Ltd | 23.3 | Medium Risk |
| Hindustan Unilever Ltd | 23.0 | Medium Risk |
| State Bank of India | 26.8 | Medium Risk |
| Tata Consultancy Services | 14 | Low Risk |
The Bottom Line
In India, ESG investing is still a nascent but growing trend, with more and more asset management companies launching ESG-themed funds in the past few years. As of March 2023, there are 12 ESG funds in India, with a total asset under management of over Rs 10,427 crore.
We’ve compiled a list of some of the best ESG funds and firms committed to assisting India’s net zero mission by 2070. So, if you want to be a part of this renewable revolution, start your path to sustainability today.
If you need more confidence in your investing choices, be bold in approaching any expert for your financial portfolio management.
