Axis Mutual Fund became the third fund house to launch an ESG fund. The new fund offer opened on Jan 22 and will remain open until Feb 5.
Asset managers hunt for new themes of investing. This need not always be pure commercial in nature. There have been ways to generate returns through niche themes as well. One such theme is the ESG.
The pioneering policy move has been UN Principles for Responsible Investment (PRI). This has evolved into a global network of investors selecting investments ESG criteria.
It broadly covers specific areas of marine protection, businesses in sustainable development and natural resource conservation, managements with transparent business practices.
In developed markets, it has cornered more than 1/5 of investment assets. In emerging markets, it is gaining ground.
"Companies focussing on triple bottom line (People, Planet and Profits) deliver sustained returns over long periods. As investors, focusing on sustainable businesses should not only help portfolio returns, it also sends out a signal to corporates to integrate sustainability in their business practices, which in turn creates long term win-win for all," said Navneet Munot, Chief Investment Officer, SBI Mutual Fund.
Environmental, social and governance (ESG) refer to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business. These criteria help determine the future financial performance of companies better.
Interest in ESG analysis has been growing rapidly around the world and in India also it has evoked a lot of interest.
Currently, there are three fund houses that offer an ESG fund and slew of others are contemplating launching an ESG fund.
SBI Mutual Fund already has a fund called SBI Magnum ESG Equity Fund (renamed in May 2018 from SBI Magnum Equity Fund which was launched in Jan 1991), and Quantum was the second fund house that launched on June 21, 2019 after a gap of almost 29 years.
Axis Mutual Fund became the third fund house that floated an ESG fund. The new fund offer that opened on Jan 22 and will remain open until Feb 5.
The open-ended multicap scheme will be investing in companies demonstrating sustainable practices across environment, social and governance theme. The scheme will invest up to 30 percent in global sustainable companies.
The scheme will exclude sectors/themes that are deemed harmful from a societal perspective. For instance, exclude tobacco, liquor and defence stocks.
"By combining ESG analysis with traditional financial metrics, we can come up with a more holistic understanding of each company in our portfolio," said Chandresh Kumar Nigam, Managing Director and Chief Executive Officer, Axis Mutual Fund.
The recent spate of corporate governance issues cropping up is increasing, this may force the mutual fund industry to launch funds based on Environment, Social and Governance (ESG) investing.
All these funds are benchmark against Nifty 100 ESG Index.
The Nifty100 ESG Index has outperformed the Nifty50 Index in the last 8 years.
From 2011-2019, Nifty100 ESG Index Fund delivered 14.5 percent returns while Nifty 50 Index gave 12.9 percent.
Since Inception (1991), SBI Magnum ESG Fund has delivered 13.72 percent average returns. In the last five years, SBI the schemes has registered 9.45 percent average returns.ESG being a niche set of assets, the returns are likely to be different from regular benchmark indices. The cost structure of environment-oriented companies is generally low and, therefore, superior returns may be delivered, if invested in quality assets.
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