Sustainable or ESG (environmental, social, and governance) focused mutual funds in India have seen a decrease in asset base by Rs 2,020 crore in fiscal 2022-23, despite a growing awareness and interest in responsible investment practices. There are currently 12 mutual fund schemes in India with ESG as their theme, and while experts hope such funds will attract greater attention in the coming years, interest is expected to remain muted for sustainable funds in the current financial year due to ESG investing still being in its nascent stage.
However, ESG investing is gaining traction globally, and there are investable options available for investors with recent equity schemes and ETF fund of funds being launched under the ESG space. The decline in asset base is a result of several factors such as overall market sentiment and investors shifting their preferences towards other investment options. Moreover, short-term fluctuations in asset base do not reflect the long-term potential or performance of ESG funds. These funds have provided returns in the range of 9 to 17 per cent in the past fiscal and have exposure to themes such as renewable energy, low carbon, green transport, and environmental protection.
Although the market regulator in India, Sebi, is coming up with proposals around sustainable investing and disclosures, acknowledging the growing interest around the globe for sustainable investing, it is still early in India from an ESG perspective. Nevertheless, with growing concerns about environmental and social issues, coupled with the regulatory initiatives to promote ESG investing, the demand for ESG funds is expected to rise in the future.
