India has less funding on environmental, social and governance (ESG) issues than other top 10 economies, data shows, amid caution among investors about ESG funds, which have not yet had a track record in India’s market. Made it.
The world’s sixth-largest economy has 23 ESG funds, Refinitiv data shows, with more than 500 in the United States and Britain, while Japan has 182 and China has 119. Other economies in the top 10 also have more ESG funds.
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“Unlike Europe-led global markets, Indian investors are not completely used to the concept of sustainable investment, where sustainable investment exists,” said Kaustubh Belapurkar, Director, Morningstar India.
Analysts said investors were hesitant to infuse cash into ESG funds as most of the funds in the sector were new and could not show a track record of outperforming.
Chaitanya Kalia, Partner, EY India, said, “Institutional investors and distribution partners often have policies in place that do not allow them to invest in funds that have been in the market for less than three, or in some cases, five years. Huh.”
“The idea is to track performance and consistency before investing,” Kalia said.
Data from Morningstar shows that Indian ESG funds have faced outflows in 12 out of the last 14 months. Conversely, inflows into equity mutual funds reached record highs ₹22,583 crore ($3.04 billion) in July, shows Association of Mutual Funds data.
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Dhirendra Kumar, founder and chief executive of Value Research, said institutional participation was driving money into ESG funds in Western markets.
“When you have a committee that explains and passes a resolution, they have to invest the money,” he said. “In India, it is led by retail investors. And retail investors chase the recent performance.”
Lipper data shows that Indian ESG funds have grown an average of 19% this year, which is in line with total equity funds.
The Securities and Exchange Board of India (SEBI) in May announced new disclosure norms based on ESG parameters for the top 1,000 listed companies by market cap.
Those rules, effective from the fiscal year beginning in March, are intended to help investors look beyond the company’s financials and assess its social and environmental impact.
EY India’s Kalia said, “Greater transparency on ESG performance will support the growth of the ESG Fund.” “It is very likely that we will see more ESG funds emerge in the next two to three years.”
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