S: Social responsibility
G: Corporate governance
Usually an investor looks at financial parameters before investing in any company but now they started looking at non-financial parameters associated with climate, environment which drives their decision to invest in a particular company or not.
There are 3 parameters that investor look for:
· In this decade there has been an increase in average global temperature, rivers getting polluted and deforestation rising causing huge problems for the upcoming generation
· So investors want to invest in companies those are switching to renewable resources, improves their waste management practices, or curbing their emission levels.
· Companies should handle the resources in an optimal manner where they work. The concept simply is that If you are taking from environment or society, you have to give them back
· Companies should not involve in any activity that cause harm to natural environment
· In India, it’s a law that you have to pay 2% of your company profits for CSR i.e. corporate social responsibility activity
· It’s all about honesty and integrity of management
***So now let’s look at ESG fund and its impact on industries and are there any ESG funds exist in India***
ESG fund is a type of mutual fund where fund will invest in companies that will score high on 3 parameters i.e. E,S,G discussed above
Some Indian ESG funds are as follows:
· ICICI ESG fund (announced in September 2020)
· SBI Magnum Equity ESG
· Axis ESG
· Quantum India ESG
Global markets have so far 3300 ESG funds with $41 trillion in it
Prospects and Impacts
· Indian millennials are getting much more conscious about Climate change and they will start investing in companies that are good at ESG parameters
· Tobacco companies will suffer a big hit as well as coal electricity based firms.
We will cover impact of Climate change on Insurance industry in the upcoming article.
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