Thursday, April 13, 2023
HomeMutual FundAre ESG themed mutual funds worth investing in?

Are ESG themed mutual funds worth investing in?


A reader wants to know if investing in an ESG-themed mutual fund is worth it. So some numbers and some discussion. In general, all thematic funds are unnecessary. The same logic applies to ESG, which gives off a “saving the planet vibe”!

What is the Environmental, Social and Governance (ESG) investment theme? It involves choosing stocks of socially responsible, environment-friendly and ethical firms to achieve superior risk-adjusted returns. Environmental empathy (E) includes efficient waste disposal, cognisance of climate change, pollution, energy and water conservation, etc.

Social Responsibility (S) includes company management with gender equality, women empowerment, labour welfare & rights, contribution to social causes etc. Corporate Governance (G) refers to businesses with ethical practices, efficient management, absence of fraud, illegal action etc.

Generally, an ESG investor will not pick stocks involved in any (major) controversy, engaged in tobacco, alcohol, controversial weapons, gambling etc. The ICICI Prudential ESG Fund presentation refers to these as “sin companies”.

Besides the natural aesthetic appeal of investing in ethical businesses, the key idea behind the ESG theme is such companies are unlikely to be impacted by controversy and regulation associated with E, S or G factors making the business more sustainable. This conscience-clearing stance is also expected to beat the market (e.g. the Nifty) in the long run.

Calling X or Y firms a “sin company” is purely arbitrary. If producing alcohol is a sin, then so is producing sugar which is just as much a toxin to the liver as alcohol. What about firms that produce dairy or create dairy-based products? The point is ESG is an arbitrary, debatable notion that might appeal to those who wish to clear their conscience chasing stock returns.

Three stocks in the top holdings of Quantum ESG fund – HDFC, HDFC Bank and Infosys – are also among the top stocks of Quantum Long Term Value Fund. So one could argue that I am doing my bit to save the planet by investing in a diversified equity fund.

An industry expert who wishes to be anonymous said, “ESG stock selection suffers from poor data quality, lack of standardization and regulations of reporting on data, subpar quantification of several qualitative variables, large scale data mining coupled with mis-selling based on people’s Greed (earn better returns) and Morality(while doing good deeds). Overall, this is yet another opportunity to rip off people with 2% fees. In short, ESG Investing is not a good idea, and please stay away from them. There are several other less financially risky ways to help the planet “.

With that out of the way(!), if you like to look at the past performance of the NIFTY100 ESG Index, see our review of ICICI Prudential ESG Fund. Let us look at the trailing return of available ESG funds with at least one year of history as of April 3rd 2023.

Trailing returns of ESG funds compared with NIFTY100 ESG - TRI and NIFTY 50 TRI
Trailing returns of ESG funds compared with NIFTY100 ESG – TRI and NIFTY 50 TRI. The five-year return of the SBI fund should also be marked in red. It is incorrectly marked in blue.

Evidently, that is a pretty awful performance. If these AMs were so keen on lending a hand to save our planet, they would have launched a low-cost ESG index fund. At least then, the poor performance of the Nifty100 ESG index compared to the Nifty 50 would be palatable. We, therefore, recommend avoiding ESG funds.

Do share this article with your friends using the buttons below.


🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥


Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!


New Tool! => Track your mutual funds and stocks investments with this Google Sheet!


  • Follow us on Google News.
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Join our YouTube Community and explore more than 1000 videos!
  • Have a question? Subscribe to our newsletter with this form.
  • Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!


Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.


Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.


Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   


Our new book for kids: “Chinchu gets a superpower!” is now available!

Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.

Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!

Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!

Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.

Buy the book: Chinchu gets a superpower for your child!


How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!


Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!


We publish monthly mutual fund screeners and momentum, low volatility stock screeners.


About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)


Connect with us on social media


Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.


Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.


Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)


 



RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisment -
Google search engine

Most Popular

Recent Comments