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This Latest Investment Opportunity Is Gaining Global Traction..
In a recent poll#, Investors from 50 global institutions were surveyed.
These institutions collectively represent a total of $12.9 trillion in assets under management (AUM).
They were asked a simple question -
'How they expected COVID-19 would impact the future of ESG investing'.
71% of respondents responded that it was "rather likely," "likely," or "very likely".
Now at this point in time you are probably wondering what ESG is.
We will come to that in a moment.
But first...
When 71% of a US$ 12.9 trillion pool agrees with an investment idea, you would be wise to take note of it.
You see, the core idea under discussion was this...
Once a niche, ESG investing is now a fast growing preference for investors across geographies.
Is ESG new to you?
Well, it stands for Environmental (E), Social (S) and Governance (G).
Asset managers around the globe are prioritizing the integration of material ESG factors when making investment decisions.
This means that when they invest money in a stock of a company, they want the company to be more than a money spinner. ...
... ESG fund managers now want their companies to behave like good citizens and take care of their environment and the society at large. They also want their investee companies to follow a very high level of corporate governance.
This trend, dear reader, is irreversible.
As per data from UN PRI, the value of global assets signing up for ESG inclusion in investment decisions has tripled over eight years, to $40.5 trillion in 2020.
Now, that's big.
And in case you were wondering why it's this big, well, it turns out that being an ESG investor also helps you generate better returns.
More on this in a moment.
First a question that may arise now is this...
Is ESG investing limited to the developed world? Where does India fit into this?
Well, the opportunity for ESG investing in India is even bigger.
Post impact of COVID-19 Indian investors are drawn towards ESG funds.
Between January - March this year ESG funds attracted over Rs 1,700 crore in AUM.*.
Category AUM currently stands at Rs 4,400 crores*.
This proves investors are interested in environmental, social and governance issues and see a positive correlation between sustainability and economic return.
Now coming to what gives ESG funds an edge over regular equity funds? Why is money invested into ESG the world over?
See, ESG funds aim to deliver risk adjusted returns over long term.
The basis being that companies that are strong on ESG have relatively better long-term financial prospects.
Responsibility and profitability of a company in other words go hand in hand.
Evidently, the ESG index better protected downside risk in the stock market mayhem caused by the pandemic. Exactly as it should.
This is surely a wake-up call for investors who think investing in ESG funds would mean compromising on returns.
It's time for you to think the other way round - investing in ESG oriented funds is your opportunity to invest with an aim to make long term return.
Data Source - *AMFI, #JP Morgan
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