ESG stocks in India – These are the stocks where companies are given an ESG score based on the impact of their business on the Environment, Social & Governance. There are various rating agencies that use their own methodology and calculate the ESG score.
ESG has been gaining a major buzz in the Indian stock market. The concept is still relatively new in the country. More and more companies have started evaluating themselves on ESG parameters. I have written a detailed article on how to calculate the ESG score of the company, you can check that for more details.
ESG score basically talks about the business sustainability of the company keeping in the mind the environmental, social, and governance factors. There is a general feeling that investing in a high ESG score company can fetch higher returns.
In fact, if you check the data, it also says the same thing that ESG compliant companies tend to give higher returns. But what I think is completely different that ESG is a thematic investment where the theme is Environment, Social & Governance. Theme-based investment usually never gives good returns in the long run. It may fetch you decent returns in the short term, but in the longer run, it cannot.
How to find ESG Stocks in India?
If you want to invest in ESG stocks, there are two ways you can do so. One is you select any ESG mutual funds and start investing in them. This ESG fund will collect the money from the people like you and me and then invest it into the ESG compliance companies.
This is the simplest and easiest way to invest in ESG stocks in India. Setup a SIP, and you are good to go. You don’t need to go and find individual ESG compliant stocks and check their fundamental/technicals one by one.
Here is the list of the ESG mutual fund schemes.You can select any one from the list and start a SIP.
| Scheme Name | Launch Date | AUM (Cr.) | YTD Return |
|---|---|---|---|
| SBI Magnum Equity ESG | 1 Jan 1991 | 1535 | 4.13% |
| Quantum India ESG Equity | 12 July 2019 | 3428 | 14.13% |
| Axis ESG Equity Fund | 12 February 2020 | 1907 | 33.19% |
| ICICI Prudential ESG Fund | 09 October 2020 | 1614 | 17.80% |
| Aditya Birla Sun Life ESG Fund | December 2020 | 919 | 6.20% |
| Kotak ESG Opportunities Fund | December 2020 | 1535 | 5.21% |
| Quant ESG Equity Fund | 06 Nov 2020 | 13 | 31.70% |
| Invesco India ESG Equity Fund | 18 March 2021 | — | — |
The money collected through these funds is being invested into ESG compliant companies. You can check an individual company’s ESG score on your own.
So without doing any research on your own, you can invest in any of the ESG fund.
Now let’s talk about the second method of identifying the ESG stocks on your own. For doing this you can pick up any of the above ESG fund schemes and search them into the ValueResearch portal. For example, I will select the SBI Magnum Equity ESG fund. I will search it on the portal and it will show me the various data points related to the fund.
Go to the ‘Portfolio’ tab on the portal. You will see the asset allocation pie chart in front of you. Scroll it down and you will find the list of the top companies in which this fund has invested. It will look like as below.
You will get a ready-made list of the ESG compliant companies in front of you. In the above table, you will not be able to check the stock’s ESG score. For that, you need to go to the Yahoo Finance website and search for the individual stock to find its ESG score.
Why You should not invest in ESG Stocks
Here are the reasons why you should avoid investing in to ESG stocks in India.
- The ESG scores are derived by the various rating agencies. All these agencies have developed their own methodology for calculating the ESG score of the company. There is no common guideline laid down by any government authority like SEBI.
- There is no sector-wise ESG score. So comparing banking companies with the tobacco company is not an apple to apple comparison. Choosing a stock based on such comparison may lead to financial loss.
- The ESG scores are being updated very fast. Usually, it gets updated every week. So if you have invested in any company’s stock based on its higher ESG score, but there are chances that the score might be lower next week. Under such circumstances, your investment decision may go wrong.
- ESG is a thematic investment philosophy. You as an investor never invest all your money into any single stock/fund. You should always diversify your investment in different investment avenues.
Conclusion:
I strongly believe that you should not invest in ESG stocks as they are thematic in nature. There are many other sectors, individual stocks which can give you better returns and can be future multi-bagger stocks. I personally have not invested in any ESG fund or stock specifically for ESG score only. Still, these are my personal views and you should not take them as investment advice. Consult the investment advisor before making any decision on ESG stocks in India.