It is common knowledge that the future of our environment is in a precarious position and has become a priority for governments and businesses across the globe. Climate change, environmental degradations, extreme weather scenarios have become a routine part of the reality of many communities across the globe. Also, cognizance of the evils of growing inequalities, the need for social justice and reform and mobilizing political action and financial support for tackling these issues have led to a call for action in more ways than one

The challenges posed by climate change and the degradation of the environment are making many businesses around the globe to switch to practices that are sustainable. While the shift to business models that align with the environmental ethos of the movement to combat climate change are at the crux of this, there are a multitude of other factors that businesses need to be mindful of to be true to the goal of sustainability. For this companies need to be compliant with a set criterion of environmental, social and governance standards. To push more businesses to embrace the ESG standards, regulators are attempting to bring changes so that companies maintain utmost transparency in their disclosures and reporting.

More and more investors are also choosing companies that care about environmental, social and governance issues. Sustainable environmental practices help in better management and allocation of resources while ensuring lesser impacts on the environment. Sound social policies cement greater credibility, attract talent and maintain better employee retention and also benefit communities. Ethical governance practices can help cement the trust of investors and also attract government support in various ways.

The emergence of ESG can be traced back to the United Nations Global Compact report issued in 2005 and currently, more than 3,000 asset managers worldwide, with a total of $103 trillion in assets, have signed the United Nations’ Principles for Responsible Investing. In India, socially responsible investing can be considered the predecessor of ESG investing but it was only in 2011 that the Nifty 100 ESG Index was formed to track the performance of companies within the NIFTY 100 index based on Environmental, Social, and Governance (ESG) score. As per the data released by the Association of Mutual Funds (AMFI) in December 2020, the combined assets under management (AUM) of ESG Funds in India were Rs.9516 crore.

For retail investors, choosing the right ESG stocks can be tricky. Yes, they can delve into the ESG initiatives of companies and directly invest in them, but a better route is to invest in ESG mutual funds. Getting a clear picture of a company’s commitments to ESG values may be a laborious and difficult exercise for individual investors. On the other hand, experienced fund managers have the appropriate expertise and tools to correctly determine whether a company is truly eligible for ESG investing or not. Fund houses have formulated their own framework on the basis of which they choose companies for ESG investing.

On May 10, 2021, the Securities and Exchange Board of India (SEBI) issued a circular notifying new disclosure norms on sustainability related reporting for the top 1,000 listed companies by market cap by FY23. The reporting will now be under a new business responsibility and sustainability report (BRSR) format, the SEBI circular said. SEBI is also considering introducing a disclosure and investment framework for mutual fund (MF) environment, sustainability and governance (ESG) schemes, according to a report published in October 2021. Currently, top 1,000 Indian listed companies are required to submit business responsibility and sustainability reports (BRSR) to the stock exchanges. The report should lay down the various ESG initiatives taken by a company and the disclosures have to be made in a format specified by SEBI. Other listed companies can submit the BRSR voluntarily.

It is also important to remember that given that ESG funds work on the three pillars of environment, social, and governance sustainability companies engaged in the businesses of tobacco, alcohol, controversial weapons and gambling operations are not considered ESG-compliant.

Disclaimer: An Investor Education Initiative by Mirae Asset Mutual Fund

For information on one-time KYC (Know Your Customer) process, Registered Mutual Funds and procedure to lodge a complaint, refer to the knowledge center section available on the website of Mirae Asset Mutual Fund

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.


IE Disclaimer

An investor education initiative by Mirae Asset Mutual Fund.

For information KYC process, Registered Mutual Funds and the procedure to lodge a complaint, refer knowledge centre section available on the website of Mirae Asset Mutal Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.