Inflows in sustainable funds surge 76% to Rs 3,686 crore in FY21

New Delhi: Driven by increased investor interest in environmental, social and governance issues, sustainable funds in India attracted Rs 3,686 crore in the 2020-21, a jump of 76% from the preceding fiscal. Moreover, the COVID-19-led crisis has only accelerated the demand for sustainable investing.

Sustainable or ESG (environmental, social, and governance) funds in India witnessed an inflow of Rs 3,686 crore in just-concluded fiscal as compared with Rs 2,094 crore in 2019-20, according to Morningstar data.

Such funds offer exposure to themes such as renewable energy, low carbon, green transport and environmental protection.

Morningstar India Director and Manager (Research) Kaustubh Belapurkar said, “While still early days in India from an ESG funds perspective, the launch of ESG funds has increased investor awareness significantly. Many domestic asset domestic managers are already incorporating ESG principles in their overall investing framework.” He further said corporate India is also increasingly acknowledging the need to effectively manage the ESG factors as means to mitigate business risks as well as attract long-term capital from investors who are increasingly considering ESG factors to make investment decisions.

In addition, domestic regulations are also calling for greater disclosures from companies with respect to their sustainability practices, Belapurkar said.

Winvesta co-founder Prateek Jain said ESG conscious investing is just starting in India and investors are paying more attention on how socially responsible their portfolio is. “Investors have started embracing the fact that they don’t have to sacrifice returns by opting for high ESG stocks, as identified in several studies.” The Indian mutual fund industry witnessed increased interest in ESG Funds, with the launch of several new ESG funds in the second half of 2020-21.

Among the new launches are Aditya Birla Sun Life ESG, ICICI Prudential ESG, Kotak ESG Opportunities, Quant ESG Equity Fund, Invesco India ESG Equity and Mirae Asset ESG Sector Leaders ETF.

ICICI Prudential ESG fundraised $225 million in assets, making it the most successful new ESG launch in India, Morningstar noted.
Quantum India ESG Equity Fund and Axis ESG Fund were launched in July 2019 and February 2020, respectively.

SBI Magnum Equity ESG Fund with an asset base of Rs 3,518 crore is the oldest ESG Fund in India. It was initially a diversified equity fund that reoriented itself as an ESG-compliant fund in 2018. These ESG funds together has an asset base of nearly Rs 9,900 crore at the end of March 2021.

Besides ESG funds, experts believe index funds and exchange-traded funds (ETFs) are the other themes which are gaining traction among the country’s mutual fund companies.

Going forward, ESG considerations will become an integral part of the overall investing framework for asset managers in India, Belapurkar said.

Overall, Asia (excluding-Japan) saw net inflows of $7.9 billion in sustainable funds in the entire 2020, a steep increase from USD 810 million in 2019.

In addition, ESG assets in Asia (excluding-Japan) reached the $25 billion-mark in 2020, growing by 130% compared with 2019.  Further, allocation funds registered a 215% growth, while fixed-income offerings grew by 120%.

However, equity remained the largest asset class represented, with $13.2 billion in assets, recording a strong growth of 94% in 2020 over 2019.