ESG Investing in India – What is it? A Path to Sustainable Growth

Have you heard about ESG Investing before? In recent years, a lot of emphasis has been paid to Environmental, Social, and governance factors in India. Do you know the reason why?

Whatever businesses and people do affects the planet in some way. People are becoming more and more aware of the adverse reactions of their actions. That is why the need to get sustainable and responsible investments is surging.

The Indian economy is booming and it is becoming a promising center of ESG investing. Investors are excited for this opportunity. So, let’s unravel the potential of ESG and how it has paved the way towards sustainable growth.

Meaning of ESG Investing 

ESG is an acronym for Environmental, Social, and Governance factors. The basic rationale is to figure out how the business interacts with the stakeholders. Society is a general part of the business. We all know that business takes from society and it must pay back.

The idea is to not only focus on societal aspects but others like Environment and Governance. Businesses can get into sustainable practices only if it ensures that each of the three factors is being taken care of. Thus, investors can do an ESG analysis to check if the company is in for the long haul.

Having sustainability as a core value is definitely a positive point for a company. It means the ESG is healthy and business is credible. On the contrary here are some risks that a company with a bad ESG level faces:

• Instability
• Sudden losses
• High-risks

Lets see what each alphabet in ESG means:

“E”- Environmental factors include environmental disclosures, the company’s impact on the environment, efforts to curb pollution or maybe carbon emissions, etc.

“S”- Societal Factors include diversity, management, and human rights.

“G”- Governance Factors include the composition of the Board, initiatives on whistleblowing, corruption, bribery, unlawful behavior, and internal and external policies. 

In the words of our Former President, A.P.J Abdul Kalam–

“Sustainable development refers to a mode of human development in which resource use aims to meet human needs while preserving the environment so that these needs can be met only in the present, but only for the generation to come.”

Types of ESG Investing

There are three types of ESG Investing as follows:

1. ESG Stocks

Companies publish a sustainability report as per the ESG norm. The report contains information about all the business practices done, any environmental initiatives taken, and dealings with social causes. If any of the investors want to invest in the said company, they can do so without buying a mutual fund pool. Direct investments in ESG Stocks are available.

2. ESG Funds

If you are already registered with a broker then you know they provide an option to make your portfolio. Being an investor it is your duty to analyze the brokers and then choose the one offering the highest rate ESG funds. Some of the top ESG Funds in India are SBI Magnum Equity ESG Fund, Axis ESG Equity Fund, etc.

3. ESG ETFs

ESG ETFs are an ethical investment option for you. ETFs in general pool the funds and invest in multiple segments like derivatives, bonds, and even shares. Since it is ethical you are not permitted to invest in cigarettes, weapons, or any kind of controversial stocks. Did you know they are called “Sin Stocks”? The reason is because the risk and taxes on them are skyrocketing high.

4. ESG Index Funds

In India, there are 4 ESG indexes namely:

-Nifty 100 ESG Index

-Nifty 100 Enhanced ESG Index

-Nifty 100 ESG Sectors Leaders

-S&P BSE 100 ESG Index

Benefits of ESG Investing to Investors and Companies

The time today has revealed that making the right investment decision is about considering the ESG factors of a company and not only its public image. As an investor here are some of the benefits of ESG investing.

1. As discussed earlier, it is an ethical investment. Thus, all high-risk or loss-producing companies are removed from the pool.
2. Companies with high ESG scores operate efficiently, thereby removing any extra expense on over-advertisements. In short, the purchase will be cheaper and have high profits.
3. ESG funds always bring excellent performing companies to investors. The main reason is that a lot of attention is paid to the “G” i,e, Governance. It means better reputation and engagement in community upliftment. Thus, higher profits.
4. This trend has kind of put pressure on companies to focus on each element in ESG. This way they give more to society and ensure that business operations are economical and efficient.

Companies, too, benefit from ESG in different ways. Here are some benefits that they derive.

1. The most significant benefit is that businesses can procure financial resources amicably. A lot of efforts are made towards sustainable growth and the creation of strong corporate identities.
2. Because of the reasons given above, the government also gives grants easily. Likewise, licenses and approvals are also provided quickly.
3. Implementation of ESG practices helps enterprises to minimize any kind of unfavorable government activities towards them.
4. More emphasis on ESG will automatically induce other stakeholders in favor of the company. For example, customer preferences will change, labor retention will become easier and the overall labor productivity will also increase.

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ESG Investing in India- Final Thoughts 

ESG Investing is a popular buzz in the market these days. It not only offers promising avenues to investors but also companies as well. No doubt, sustainable growth is the future and businesses are rounding up to achieve it.

Business cannot flourish without society, environment, and governance. These factors are the lifeblood of long-term sustenance. As the genZ is inventing new slang, ESG can be called as the “new normal” in investing.

What do you think about reliance on ESG investing in India? Feel free to share your comments.