ESG Funds – UPSC Prelims

ESG funds are witnessing a growing interest in the Indian mutual fund industry these days.

What are the ESG funds?

  • ESG means using Environmental, Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability.
  • ESG investing is used synonymously with sustainable investing or socially responsible investing.
  • While selecting a stock for investment, the ESG fund shortlists companies that score high on the environment, social responsibility and corporate governance, and then looks into financial factors.
  • So, the scheme focuses on companies with environment-friendly practices, ethical business practices and an employee-friendly record.
  • They imbibe the environment, social responsibility and corporate governance in their investing process.

Why so much focus on ESG now?

  • Modern investors are re-evaluating traditional approaches and look at the impact their investment has on the planet.
  • As a result of this paradigm change, asset managers have started incorporating ESG factors into investment practices.
  • Companies with good ESG scores tick most of the checkboxes for investing, tend to mitigate environmental and social risks and tends to have stronger cash flows, lower borrowing costs and durable returns.
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