Investors are yet to familiarize themselves with the concept of sustainable investing with sustainable or ESG (environmental, social and governance) funds in India witnessing outflows of Rs 315 crore in 2021-22. This follows a staggering inflow of Rs 4,884 crore in the financial year 2020-21.
Prior to that, sustainable funds saw an infusion of over Rs 2,000 crore, according to data compiled by Morningstar India. Going forward, ESG considerations will be an integral part of the overall investment framework for asset managers in India, experts have said.
So far, most flows into sustainable funds have come during the New Funds Offering (NFO) period and FY 2020-21 has seen strong inflows as there have been several ESG fund launches , said Kaustubh Belapurkar, director – Manager Research, Morningstar India.
Currently, markets are volatile and flows are impacted across all asset classes due to macro and micro conditions, said Nakul Zaveri, Managing Partner, Relativity Investment Advisors. “However, by definition, sustainable funds should be long-term in nature, but these funds better understand long-term competitive advantage and now post-Covid resilience much better than last year.
These funds will always be less volatile in nature,” he added. Sustainable funds offer exposure to themes such as renewable energy, low carbon emissions, green transport and environmental protection. Globally, flows into sustainable funds continue at a rapid pace, with assets in sustainable funds. globally exceeding USD 2.7 trillion in December 2021.
It is still early days in India from an ESG perspective, but with the launch of ESG funds in recent years, there are investment options available to investors, Belapurkar said. ESG funds are growing in the Indian mutual fund industry with asset management companies (AMCs) launching equity programs in the ESG space under the thematic category. AMCs are also launching exchange-traded funds (ETFs) and fund-of-funds ETFs into the ESG space.
Currently, there are 12 ESG-themed mutual fund schemes in India with assets under management of over Rs 13,000 crore. Recognizing the growing global interest in sustainable investing, capital markets regulator Sebi is also seeking to frame regulations around sustainable investing and disclosure.
The regulator had put together a consultation paper for ESG rating providers for securities markets in January and sought public comment. Sebi will establish the final settlement after considering the views of all stakeholders.
In the consultation document, Sebi proposed that credit rating agencies (CRAs) and research analysts with a minimum net worth of Rs 10 crore would be eligible to be accredited as ESG or ERP rating providers. Besides ESG funds, experts believe that index funds and exchange-traded funds (ETFs) are the other themes that are gaining traction among mutual fund companies in the country.
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Article first published: Sunday, April 24, 2022, 11:16 a.m. [IST]