The Rise and Fall of ESG Investment: Are ESG Funds Losing Sheen in India too?
In the past few years, ESG investing had seen significant growth as investors were increasingly seeking to align their investment with their sustainable values. However, in the past 18 months year, the demand for sustainable funds seems to be waning and this trend was seen worldwide. Why is it happening?
Socially responsible investing (SRI), ethical investing or environmental, social and corporate governance (ESG) investing are different types of investment strategies that fall under “sustainable investing” concept.
Among the different styles of sustainable investing, ESG investing had gained significant traction especially since 2020. ESG investing embodies a commitment to societal welfare and environmental sustainability along with financial returns. It looks beyond quarterly numbers and considers the bigger picture. Its not just a novel concept but makes complete investment sense.
After all, a company with unsafe working conditions, history of oil spills and that do not address climate risks may yield good returns in the short run, but they won’t pay-off in the end. Forward-thinking organizations know ESG impacts their overall risk profile. So, as an investor incorporating ESG factors into your investment strategy inherently reduces your portfolio risk.
Why ESG Investments Matter?
ESG investing embodies a commitment to societal welfare and environmental sustainability along with financial returns. Many investors align their investment choices with their ethical values in a world increasingly aware of climate change and social inequities.
This paradigm shift is crucial in understanding the long-term potential and importance of sustainable investing, which seeks financial gains and aims to impact society and the environment positively.
Why the Decline in Trust for ESG Funds in India?
The trust in ESG funds in India is facing a crisis, primarily due to the issue of greenwashing. Greenwashing occurs when investments labelled ‘ESG’ overstate their positive impact on environmental and social factors.
Recent reports and statistics indicate a growing trend of scepticism among investors due to these misleading claims. Despite SEBI’s efforts to implement robust ESG regulations, the challenge lies in rebuilding investor confidence and ensuring that ESG funds truly reflect their stated objectives.
Standardising ESG Reporting: The Key to Trustworthy Investments
One significant challenge in ESG investing is the need for standardised ESG measurement and reporting criteria. This inconsistency makes it difficult for investors to assess the true impact of ESG funds.
To foster trust and authenticity in ESG investments, there is a pressing need for uniform ESG reporting standards. Regulatory bodies like SEBI have a crucial role in this context, as they can enforce transparency and set clear, consistent guidelines for ESG criteria, thereby ensuring that investments are genuinely aligned with their claimed objectives.
ESG Investing as a Long-term Strategy
In the Indian context, ESG investing should be viewed through a long-term lens. Most ESG funds in India are relatively new, with a limited performance history for comparison. However, the trend is gradually shifting towards investor-driven interest in these funds. This evolving mindset underscores the importance of recognising sustainable financial planning and the long-term potential of ESG funds.
As more investors comprehend the significance of integrating ESG factors into their investment decisions, the demand for these products will increase, highlighting their long-term growth and sustainability potential.
Sum Up!
Exploring ESG investing in India can be tricky due to issues like greenwashing and variable performances. But, it’s also filled with chances for investors who want to invest ethically and think long-term. As the market grows and regulations improve, ESG funds will likely become critical players in building a promising future for the planet and our wallets. For those not just after quick profits, ESG investments are a way to make a meaningful and conscientious impact with their money.
