ESG funds gains momentum in Indian MFindustry

Environment, social and governance (ESG), the flavour of the season from Tokyo to Toronto, has caught the fancy of the local mutual fund industry. At least half a dozen asset management companies – Aditya Birla, ICICI Prudential, Kotak, Invesco India, Quantum India and Mirae Asset – have introduced ESG-based fund plans since October last year and have garnered about Rs 4,900 crore assets under management (AUM).The extended Covid-19 crisis has given a fillip to the theme, with these funds outperforming the sector index by up to 14.90%. These funds have yielded 7.94-19.1% in the past three months barring those which were launched later, according to data from Value Research Online.During this period, S&P BSE 100 ESG Index, an industry barometer, rose 4.2%. “ESG has gained further momentum in the aftermath of the Covid-19 crisis,” said Nilesh Shah, CEO, Kotak Mahindra Asset Management company. “The theme has now entered Indian mutual funds industry with many fund houses looking to launch similar plans. Over the next decade all fund schemes will become ESG compliant with a view to live better tomorrow.” Kotak AMC was the first and perhaps only MF house to join UN Principles for Responsible Investment, a global forum of asset managers with about $100 trillion AUM. Since November 2020, Kotak ESG fund has managed Rs 1,573 crore. “ESG-based funds give an additional choice to investors with the theme gaining momentum,” said A Balasubramanian, CEO, Aditya Birla Mutual Fund. “It increases the ability to predict risk involved in any company. An ESG compliant company enhances the prospect of more sustainable returns.”Aditya Birla Sunlife ESG Fund was launched on December 24 last year, and has about Rs 950 crore AUM now. ICICI Prudential, which introduced its ESG plan in October 2020, has AUM of Rs 1,666 crore.In March, the Invesco India ESG Equity Fund was launched, with AUM now at Rs 575 crore.ESG funds are generally open-ended thematic equity plans which invest in companies that are ESG compliant. Companies emitting pollutants or inculcating unhealthy habits via products are avoided for investment unless they change their business composition.For example, the government owned NTPC, primarily a thermal power producer, has of late turned to non-conventional energy like solar power. This has made a clear case for investment for any ESG fund manager.Total AUM of ESG market funds are now at Rs 10,408.5 crore including funds such as SBI Magnum Equity ESG Fund and Axis ESG Equity Fund. Both the funds collectively manage assets worth Rs 5,422 crore.While Axis MF introduced its fund in February last year, SBI fund was rechristened a few years ago following some regulatory guidelines. SBI fund was earlier a diversified fund.Some of the top holdings in ESG funds include Infosys, Tata Consultancy Services, HDFC Bank, HDFC Ltd, Fortis Healthcare and Divis Laboratories.Recently, large conglomerates including Tata group and L&T started working on dedicated ESG compliance, a move that is likely to reduce borrowing costs and attract investors.

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