Green is the Future of Investment

Environmental issues are no longer an earmark for environmentalists in India. As awareness towards the ecosystem grows, fund management companies are increasingly entering the green field.

Just recently Reliance Industries Ltd pledged to invest Rs 75,000 crore in clean energy, as the Earth crumbles under the environmental impact of fossil fuels. Union Power Minister R. K. Singh said about Rs 5.2 lakh crore has been invested in renewable energy across the country in the past seven years.

ESG fund (Environment, Social and Governance) representatives use the environmental, social and governance components to assess how companies and countries perform and contribute to sustainable development. ESG funds are now increasingly popular around the world. Having faced the pandemic, asset management companies not only consider financial parameters when choosing stocks, but also evaluate the company's long-term viability in a crisis.

The top and bottom lines are no longer the only criteria for judging a wise investment. Investors have shown interest in parameters such as minimum pollution, zero waste, minimum carbon footprint, sustainability, good governance principles, and fair treatment of employees.

ESG funds include Exchange Traded funds (ETF) which reflect the indices, however with extraordinary sectoral weightage. Green bonds, which are in the Fixed Income category, offer a big stimulus as a source for a company's increased investment in new-age green technology, like electric powered automobiles and similar environment friendly practices like renewable energy. ESG Assets under Management are constantly growing over. There are almost 3,300 ESG funds globally with the numbers tripling in the last decade.

Nike's latest 2019 Sustainability Campaign "Return to Zero" is a typical example of what this type of ESG and its funding can achieve. The actions of an iconic global brand can make a significant contribution to climate change and educate the world about the negative effects of climate change. The campaign aimed to "protect sports" through a company-wide effort to respond to global climate change. The company pledged that by 2025, it will include 100 per cent renewable energy and operate with zero carbon emissions. The event was a huge success, not just for the company's profitability, but also helped unite the community to fight global warming and protect environment. Nike has set an example and is undoubtedly a step forward in ESG investment. These initiatives of mega brands determine the success or failure of ESG investment and the growth of ESG funds.

The ongoing pandemic and the threatening climate change conditions are going to be critical factors in deciding what will be future course of investment patterns in the long term for companies. Eco-friendly sustainable practices and investment in green technology and renewable energy is going to take the front seat.

A few Indian companies have already taken the lead in showing momentum and methods related to ESG. Domestic oil companies in India have started to blend ethanol with petrol. Dalmia Cement is committed to formulating a road map for climate neutrality. JSW has built a conveyor belt that can transport 36 tons of iron ore per year to reduce pollution caused by trucks.

As part of the ESG investment, India takes the lead, and many asset management companies have established ESG funds in India. Axis AMC launched the Axis ESG fund in February 2020, and SBI also reintroduced its equity fund as an ESG fund in 2018. Mirae Asset ESG exchange-traded funds provides an economical way to invest in ESG companies. This particular ETF makes a difference because it is the only passive tool in India that tracks the Nifty's 100 ESG industry leadership index.

Investors should consider investing in ESG through Systematic Investment Plan at different time intervals.

In the wild, the moth feeds and mates on species from as many as 40 different plant families. That much choice means there’s usually something available to eat. The ongoing Pandemic has been a major lesson for investors that 'ignoring moths in the wild' can cause irreparable damage to health and the economy.

The priorities of future investors are changing, and funds like ESG will surely change the rules of the game over the coming years. Green is going to be the future colour of Investment.

The author is Founder, Smiling Tree

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.