In a world where social media trends, hashtags and viral videos are attracting followers, sustainable investing is picking momentum too. Given the alarming IPCC report on climate change, frequent heatwaves and irreversible effects of global warming sustainable lifestyle is not a fad anymore, but a necessity. We have not inherited this earth from our ancestors, we have borrowed it from our future generations. The increased presence of media and climate awareness has started an investing trend where ESG funds are sought. It’s investors way of doing their bit or possibly a smart long-term strategy. Either way, it’s beneficial because there is no planet B.
What are ESG funds?
ESG funds are portfolios of bonds and equities where environmental, social and governance factors have been inculcated in the investment process. In simpler terms ESG funds are funds of those companies that use green energy, cleaner fuel, practices or technology that protects our planet. ESG funds have companies that have a high sustainability score. Meaning these companies have a lower carbon footprint, do not pollute the environment, have good management practices, healthy labour relations et cetera. Also, companies with good sustainability score have fewer regulations which make working on every level smooth and maximize gains.
Why is sustainable investing picking momentum?
Gen Z and Millennials are leading the investment industry towards change. Since these guys are born between 1981 and 2010, they are likely to understand and suffer the impact of climate change the most. Also, the growing global demand for water, food and energy requires innovative experiments and investments to address it.
Planet-friendly funds are not only sustainable but also smart investments and they have high demand. The world is shifting towards electronic vehicles (EVs), energy storage cells, green energy, renewable energy etc. In India ONGC, HPC, Indian Oil, Reliance Industries, Tata Industries, NTPC etc are a few companies that have begun research and investments in the same. So, it’s a good idea to be on the right side of a trend.
Ethical investing or value investing among millennials is getting popular. As millennials are starting to take charge of their life and growing in wealth and size above themes are gathering attention too. Value investors look at a company’s financial background and what it is doing for society. They compare the ethical, social and environmental impact of a company before investing in it.
Why should an investor think about ESG funds?
Because it’s a win-win option!
Since the world is trying to shift towards cleaner energy, incorporating ESG funds in your portfolio will diversify it for good. ESG investing may not seem a lucrative option right now but isn’t investing a long-term activity. Investors invest in stocks and wait till they reach their potential. So ESG funds might not be the hot tips, but given the global craze of clean energy, ESG funds in long term will surely maximise returns. It’s like making your portfolio climate-proof by incorporating funds that are going to be ‘hot trends’ in the future. It will save the planet AND provide money. In India Asian paints, Infosys, TCS etc are some stocks that provide ESG funds.