5 Reasons To Add Esg Investments To Your Equity Portfolio

By Author: QuantumAMC
Total Articles: 80
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Sustainable Investing, Responsible Investing, Impact Investing, Clean Investing or more popularly known as ESG Investing has been the trending investment theme that has gained momentum for over a decade and especially this year during the global pandemic. But are these mere buzz words or is there any meaning to ESG investing?
As a responsible citizen, our target investments should not only be on the basis of financial parameters but also on certain values or ethics that you identify with. A good starting point can be ESG (Environmental, Social and Governance) factors when evaluating equity investment decisions. ESG aims to achieve the triple bottom line that is good for the people, planet and profits.
ESG is a structured approach of measuring the sustainability of companies by identifying potential risks hidden beneath a company's business and the long-term impact on society, the environment, and the mission of the business itself.

1. Comprehensive research: It is difficult and time consuming for you as an individual investor to invest based on ESG criteria in the absence of any readily available data. The ...
... best approach is to look for mutual fund schemes that follow ESG as a mandate. A number of mutual fund houses have launched ESG funds in India. The concept of ESG is still emerging and in its nascent stages in India and so it may be difficult to choose which is the right option for you.
Quantum is one of the first AMCs to introduce ESG as a fund in India. What's unique about Quantum is that it banks on its own proprietary research which has evolved over the last 5 years going through our own learning curve in the ESG space. Our investing journey has emphasized Governance and social factors over last two decades.
Quantum adopted what we called an "Integrity Screen" in 1996. If a company/Board does not meet our integrity checks, it will not be included in the portfolio, irrespective of how large the company's weight is in the benchmark. While we always had some of the 'Social' aspects in-built in our research process (we avoided companies with questionable business practices), we started adopting a formal approach to ESG from 2015, in terms of an actual score.
This means you can benefit from our years of experience and research behind the process of selecting stocks based on ESG principles.
2. Sound ESG Metrics: As per SEBI mandate, companies are required to prepare a business responsibility report (BRR) every year. Based on these reports, AMCs draw their selection based on the top listed 1000 companies and then use their internal criteria and systems to assign weights to companies based on multiple criteria.
Our focus has been on better disclosures, better performance with respect to gender inclusion as well as reducing carbon footprint. Here's some of the important parameters we use to select companies that make the ESG equity portfolio.
How we calculate ESG Score:
While screening companies, we subjectively evaluate more than 200 parameters across the Environment, Social and Governance domains.
• 70% weight is given to companies on their ESG performance relative to their peers and national / global regulations on material ESG aspects.
• 30% weight is given to companies on their levels of disclosures provided in their sustainability reports / business responsibility reports / annual reports.
• Governance sits at the heart of our analysis because we believe governance shortcomings usually go hand in hand with poor performance on the social and environmental fronts
• While computing the ESG score, 50% weightage is given to the Governance aspect, and the remaining 50% to the Environmental and Social aspects.
Watch Ajit Dayal explaining how Quantum works on ESG principle.
3. Risk adjusted returns: Historical trends show that a business which has good ESG practices has potential to deliver good risk adjusted returns in line with lower cost of capital and improved operational performance.
Quantum India ESG Equity Fund has outperformed the index in the first year of its inception. The fund can help you deliver risk adjusted returns over the long term. It helps you achieve long-term capital appreciation by investing in shares of companies that meet Quantum's Environment, Social and Governance (ESG) criteria.

4. Limits downside risk: ESG investing means that you invest in sustainable companies that are likely to reduce downside risk even during market downturns. ESG investing has showcased resilience even during the pandemic.
As historical trend shows, ESG index has not only outperformed the Equity index over the period, but it has also protected downside risk better as per MSCI Indexes supplied by MSCI Inc, and MSCI ESG Indexes supplied by MSCI ESG Research Inc, a subsidiary of MSCI Inc.

5. Diversified Investment Portfolio: The advantage of diversifying your investments is to reduce dependency on a single basket of equities to generate risk adjusted returns. We have a well-diversified equity investment portfolio that follows a structured and disciplined investment process in portfolio selection. Companies which score positive and are above the minimum threshold ESG score are generally included in the portfolio.
Once a niche, ESG investing is fast gaining global traction. The Principles of Responsible investing (PRI) as drawn by UN has seen over 3000 signatories from institutional investors since its inception in 2006 representing over USD $110 trillion in assets under management as of 2020.**

Take advantage of the globally emerging investment opportunity to enable your portfolio to capture maximum benefits from the market cycles.
Start allocating 20% of your equity portfolio to Quantum India ESG Equity Fund.

Note: Past Performance may or may not be sustained in future. Please note that the above information is for explanation purposes only. The information provided here is not meant to be considered as investment advice/ recommendation to invest. Please seek independent professional advice and arrive at an informed investment decision before making any investments.
**Data Source:
1) https://www.unpri.org/pri/about-the-pri
2) Global Sustainable Investment Review 2016

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