According to an article in The Hindu business line - "ESG funds recorded a net outflow of ₹315 crores in FY22 against an inflow of ₹4,844 crores logged in FY21, according to Morningstar India data".
Does this mean ESG is no longer relevant in the Indian market? Or There is no differentiator between regular and ESG funds? Is it too early for a developing country like India to adopt ESG? Let's look at all of these questions in today's article.
ESG funds of Kotak MF and ICICI Pru MF, which recorded the highest inflow of ₹1,518 crores and ₹1,422 crores in FY21, saw an outflow of ₹208 crores and ₹329 crores last fiscal.
Similarly, Aditya BSL ESG reported an outflow of ₹77 crores against an inflow of ₹902 crores in FY21, while Axis ESG stemmed the outflow to ₹264 crores the last fiscal against an outflow of ₹381 crores registered in FY21.
Historically it is observed that ESG funds are more attractive only at the time of a New Fund Offer (NFO), after that there is no big traction. One of the reasons could be the low performance of most ESG funds against the regular ones. For instance, Kotak's ESG opportunity fund which launched in December 2020 gives an annual return of 12% as opposed to Kotak Equity opportunities fund which is at 20%.
Now Globally sustainable investing is a mature concept with sustainable mutual funds and ESG-focused exchange-traded funds rose by 53% last year to $2.7 trillion, with a net $596 billion flowing into the strategy, according to Morningstar Inc.
In India though, people are yet not fully aware of this concept, however, given the global presence of ESG and the volume of FII's coming in Indian market, SEBI is soon expected to integrate ESG reported in Annual Report's of Indian Company.
In conclusion, Yes, ESG funds in India are losing their charm but it is only a matter of time before it picks up, if SEBI and other involved regulators gets company to comply with regulations, soon India can be developed sustainably.
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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.
Sources