ESG Funds

Subject – Economy

Context – The asset size of ESG funds has ballooned nearly five times to Rs 12,300 crore over the last couple of years.

Concept –

Environment, social responsibility, and corporate governance have of late emerged as key themes for investors in India.
Earlier this week, the National Stock Exchange (NSE) launched NSE Prime, a framework that allows companies to submit to standards of corporate governance that are higher than those required by existing regulations.
ESG investing – the expression is used synonymously with sustainable and socially responsible investing.
While selecting a stock for investment, an ESG fund shortlists companies that score high on environment, social responsibility, and corporate governance, and then looks at financial factors.
With the overall increase in awareness, and with regulations moving in this direction, investors are re-evaluating traditional approaches and considering the impact of their decisions on the planet.
As ESG funds gain momentum in India, companies will be forced to improve governance and ethical practices, and act with greater social and environmental responsibility.
As the policy framework changes, companies that do not alter business models or become more environmentally sustainable, could have their revenue and profits impacted in the long term.
Globally, many pension funds and sovereign wealth funds do not invest in companies that are seen as polluting or socially not responsible.