InvestorQ : What are the ESG funds & should I invest?
Pratik vyas made post
Mutual Funds

What are the ESG funds & should I invest?

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sara Kunju answered.
3 years ago
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ESG means Environmental, Social & Governance. These are portfolios of equities or bonds which have passed stringent tests over how sustainable the company is regarding its ESG Criteria. These funds fall under the category of thematic funds.
These funds would contain only those company funds that have a high sustainability score and would exclude companies with poor environmental, social and governance policies.

According to research, the use of ESG in security selection leads to better-informed decisions related to your investment.
These funds are growing rapidly among people who want to contribute to the environment without compromising their returns.  
Whether to invest or not?

There is very little data available on the funds to assess its behavior in the market, as this is a new product. The average return for the fund stood at 10.9% since its inception. Meanwhile, Nifty 50 index average returns were 9.5% and Sensex at 9.4% during the same period, according to valueresearchonline.com. However, if you listen to the experts ESG funds are slightly risky because of the strict compliances. These funds will be taxed as a regular equity investment. To conclude, you can make an investment in these funds, but only after considering all the associated risks.
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Ashok answered.
3 years ago
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Before understanding what is ESG funds, first, understand what is Sustainable Investment?

Sustainable investing is an investment approach that considers Environmental, Social, and Governance (ESG) criteria and their impact. Today’s businesses need to have a future-ready strategy. Sustainable Investment is the key.

Let’s have a look at ESG criteria in details:

Environmental Factor focuses on

  • Progressive Reduction in Energy consumption, Water consumption, CO2 and Toxic gas emission
  • Renewable Energy

Social Factor focuses on

  • Transparency to Government & Local Bodies and Rehabilitation & Resettlement
  • Cordial Industrial Relations
  • Training & Skill Development

Governance Factor focuses on

  • Competence & Diversity of Board of Directors
  • Independence of Audit & Remuneration Committee
  • Evidence of Tax Evasion
  • Transparency in the Related Party Transactions
  • Minority Shareholder Protection

When these ESG factors are integrated into investment and portfolio construction, investors can get a long-term performance advantage. Financial Consideration focuses on Planet, People and Profit.

There are many mutual funds offer products that employ ESG criteria, for example, SBI Magnum Equity ESG Fund invests in companies following the ESG theme. ESG criteria helps investors avoid companies that might pose a greater financial risk due to their environmental or other practices.

Investing in ESG Funds is becoming popular among investors to evaluate companies in which they might want to invest.

Credit goes to Quora user.

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