ESG assets under management drop 16% in FY23

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The asset base of ESG (environmental, social, and governance) focused mutual funds, have declined by Rs 2,020 crore during 2022-23. ESG investing is gaining momentum globally, and there is also increased awareness in India about these funds. At present, there are 12 ESG mutual fund schemes in India. According to data compiled by Morningstar India, the 12 ESG funds clocked assets under management (AUM) of Rs 10,427 crore in 2022-2023. In 2021-22, this amount was Rs 2,000 crore or 16 per cent lower from Rs 12,447 crore. In comparison, the assets base of the ESG funds stood at Rs 10,998 crore in March 2021 and Rs 3,605 crore in 2019-2020. The decline in FY23 in ESG funds could be attributed to several factors such as overall market sentiment and investor preferences shifting towards other investment options during the given period. Additionally, investors may have opted for profit-taking or rebalancing their portfolios, reducing investments in ESG funds, according to analysts. They said short-term fluctuations in AUM do not necessarily reflect the long-term potential or performance of ESG funds. These funds have given 9-17% returns in the past fiscal. Sustainable funds have exposure to themes such as renewable energy, low carbon, green transport, and environmental protection. Globally, flows into sustainable funds are continuing at a fast pace with assets in such funds reaching nearly $3 trillion as of December 2021. ESG funds are expanding in the Indian mutual fund industry and asset management companies (AMCs) have been launching equity schemes in the ESG space under the thematic category. The AMCs are also launching exchange trades funds (ETFs) and ETF fund of funds in the ESG space. Most flows into sustainable funds so far have come in during the new fund offer (NFO) period and the financial year 2021-22 witnessed significant inflows as there were several ESG fund launches.