ESG Investing

Achieving the bottom line is not the only factor that is taken into consideration by investors now. The impact that companies create on the environment and society also play an integral part of the investing game nowadays. Thus, investors make impact in this world through sustainable financing, or making investment decisions that consider the Environment, Social, and Governance (ESG) factors.

The trend of ESG Investing has been increasing at a rapid rate. These trends can be seen in the increased demand for ESG information and ratings by the investors, the increasing number of regulations and compliances that need to be maintained, etc. With issues like climate change, human rights, transparency and accountability, etc. coming up in every industry, investors have become more wary while making decisions. Their main goal is to not only to ensure returns but also guarantee that their funds will have good long run impact.

Investing Strategies

There are various sustainable investment strategies that can be taken up by investors. These strategies might include withholding investment to companies that don't use sustainable practices or invest in companies and motivate them to take up plans and projects that are sustainable. Investors can "tilt" their portfolios towards the percentage of ESG investments they make as compared to the non-ESG investments. Strategies may also include positive and negative screening of companies based on specific requirements of the investors. The criteria are carefully picked by investors and companies and analyzed based on them. These sustainable investment strategies need to also be analyzed based on factors like place. For example, in western countries, investors do not finance companies that are heavy users of fossil fuels. However, countries like India, where many industries are dependent on fossil fuel, can't employ this strategy. Instead, investors can push for use of renewable energy through their funds.

Opportunities

These strategies open up the avenues for opportunities for companies, to employ new technology to combat the issues relating to E, S, and G. As he environment and economy become more volatile by the minute, it is imperative to turn risks posed by them into opportunities that can be channeled to create great impact in the world. Although impact investing returns are lower in the short run, returns are often seen in the long run. The Global Impact Investing Network (GIIN) Annual Impact Investor Survey 2022 states that 88% of global impact investors saw returns that were above their expectations.

The opportunities for impact investing have become ever expanding. With sectors like renewable energy, transportation, waste management coming into the field, along with existing industries turning to sustainable practices, impact investing has begun to take strong roots in the financial playground. Policy interventions in these sectors have also led to increased capital flow in them. Such policies promote and incentivize impact investing. The Indian government's recent regulations and interventions, such as the SEBI's authorization for social venture funds, have created a climate that is conducive to the participation of impact investors. These laws and initiatives are intended to promote impact investment and the continuity of capital.

ESG Funds

The concept of ESG funds have also taken shape of tools to use one's funds to promote sustainability. ESG funds are thematic funds that are used for investing in companies that are deemed sustainable. There are various types of ESG funds like the green fund, ethical fund, social impact fund, etc., and several companies and banks have created ESG funds. Some of the best ESG funds in India are SBI Magnum Equity ESG Fund with an AUM of 4999.435 Cr, Axis ESG Equity Fund with an AUM of 1482.975 Cr, etc.

The Future

The severity of the environmental situation will drive more interest in ESG investment. Investors are now conscious of the obligations that come with their positions, and as a result, they have the ability to significantly influence the manner in which corporations run their businesses. The domains of ESG and impact investment are rapidly expanding, and they will cause a fundamental shift in the economy as we know it.