ESG Funds are the future of the global markets

1. ESG Funds are the future of the global markets Just to provide you with a quick brief on what ESG (environmental, social and governance) Funds are - they’re those equity and bond securities or funds for which factors including environmental, social and government have been adapted and integrated into the investment process. Such a portfolio tends to help you analyze how eco-friendly and sustainable the company you’re about to invest in really is. The portfolio should only include such companies with a high ESG score and exclude the ones that have poor pollution records and labour management. In the end, the portfolio also indicates the sustainability of the company, and whether or not it has a long- lasting future. The emergence and development of global phenomenons such as climate change, environmental requirements, social movements and government regulations have prompted investors and investment banking companies to consider the financial implications of these factors into their investments and incorporate sustainability or ESG factors into investment analysis and processes. Generally known as sustainability funds, they are believed to be a broader term synonymous with ESG and refers to investment in assets that deliver long-term competitive returns and positive social impact. Consequently, every major faction of investment banking believes the same, through analysis and research looking at both risks and opportunities through environmental, social, governance issues as well as business models/developments that are material for a company. ESG issues may result in a crisis causing fundamental shifts in a company’s management, culture, financial strength and valuation. Companies that show they are well prepared for ESG wrecks to have a better chance of lessening their downside risk. Such companies with improving ESG profiles also lead to gains for investors and corporate performance. While sustainability analysis cannot replace the traditional fundamental analysis, it provides the investors with a different angle in the ways a company runs and its stock picks. The thorough analysis also shows how these sustainability funds overperform as compared to the other funds and securities in the company. The analysis shows a strong and positive correlation between the ESG Funds and the company’s performance and share price. www.avendus.com

2. Similar to the rest of the world, ESG Funds in India have also seen a continuous rise in popularity. In reality, there aren’t any consistent standards on how ESG should perform as compared to its global performance yet. Fund houses have adopted their methods to determine which stocks make the ESG cut. As an alternative, you can also create your ESG securities, but this will prove to be quite demanding as you will need to dedicate a significant amount of time and energy towards studying and researching these companies. But if you think the funds wouldn’t pay up enough returns, you might be wrong. Theoretically speaking, letting go of certain categories of stocks should decrease returns. But in this case in India, ESG has delivered higher returns over certain periods by sifting through firms. An upward trend seems quite accurate for the rest of the world at the moment, but in India things still might seem a bit uncertain for now. But eventually, once the world opens up again, India’s market will soon be controlled by sustainability funds as well. . www.avendus.com

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