In the past few years, assessing non-financial factors related to environmental, social and governance (ESG) factors of a company have become as important as traditional financial risks.
Investing in ESG companies can help avoid adverse implications on the company business. Simply put, companies following ESG norms are likely to have sustainable business which can led to better valuation, lower tail risks and less systematic volatility.
Source: World Economic Forum – The Global Risks Report 2020
Why ESG?
Some studies suggest that investing in ESG companies is slightly more profitable. In fact, data shows that ESG investing has generated higher risk adjusted returns. Between April 2011 and April 2020, Nifty 100 ESG Index return has delivered a CAGR of 10.6% while Nifty 100 Index’s CAGR stood at 9.3%. Moreover, the Nifty 100 ESG Index has generated 1.3% alpha over the Nifty 100 Index with lower volatility.
Promising theme/All is well
A survey by Aditya Birla Sun Life MF shows that the majority of 1600 plus respondents felt their attitude towards ESG in investment decision making has changed after the pandemic. Besides, the Indian government too is emphasising on ESG themes. Global flows into ESG focused sectors and companies are seeing a consistent increase.
If you are looking for an ESG fund, Aditya Birla Sun Life ESG Fund can be a good choice. The fund aims to pick ESG aligned opportunities, eliminate risky companies and invest in high quality and sustainable growth compounders to generate better risk adjusted returns.
To build a solid ESG compliant portfolio, ABSL MF has partnered with leading global ESG research provider Sustainalytics for ESG scores and ratings. This will be the framework for defining the investment universe. Each company will be scored on 3 pillars of ESG and non-conforming sectors will be excluded. This will further be screened basis fundamental analysis and financial parameters with a combination of top-down and bottom-up approach.
Key highlights of the fund
- Can invest up to 35% of the corpus in international securities adhering to ESG practices
- Will have large cap bias with 60-80% allocation to large cap stocks
- Will be invested in 40-50 stocks for diversification
- Will follow a blend of top-down and bottom-up approach for portfolio construction
The fund is suitable for long term equity Investors with an investment horizon of 5 years and above. Given that the fund manager has the flexibility to invest across sectors or market capitalizations, this can be a part of the core portfolio. Also, this can work as an opportunity to give back to the society while earning healthy returns and building a sustainable future.
