What are ESG funds and how to invest in the best one

1. What are ESG funds and how to invest in the best one? Mutual fund investments come in various forms. You can pick equity funds for their potentially attractive returns or debt funds for their stability. If you want the best of both worlds, you can pick balanced funds that combine both equity and debt instruments. Different funds, different characteristics. Each of these funds helps in fulfilling the different investment needs of the investors. More and more investors have started investing in a more sustainable manner. Sustainable investing can be done in three ways – socially responsible investing, impact investing, and ESG investing. know more about the first two categories, read our article on Impact Investing Vs Socially Responsible Investing on the Teji Mandi blog. As for ESG investing, let us get into its details here. ESG investing involves ESG funds, which are a type of mutual fund scheme that follows the ESG investment theme. Let’s elaborate. ESG Theme – the concept

2. ESG stands for Environmental, Social and Governance. The ESG theme encompasses companies whose activities and operations are conducive to the ESG trinity. Here’s how it works– E as in Environmental Companies whose activities do not harm the environment qualify under this category. Such companies take measures to reduce their carbon footprint, minimise pollution caused by their production or operations, have a good waste disposal system and also preserve natural resources like water. S as in Social Companies that contribute to the development of society, as well as their employees, qualify in this category. Such companies take measures to create gender equality, have pay parity between their male and female employees, provide employee wellness and benefit programs and also contribute to social causes. G as in Governance Corporate governance measures whether companies follow the regulatory framework of the industry that they operate in. Companies that have strong compliance measures, follow the regulations, conduct themselves ethically, have a strong whistleblower policy and take strict actions against internal wrongdoings are said to follow good governance. Such companies, then, qualify under the Governance parameter of the ESG trinity. How are companies measured or ranked on ESG? Organizations like Morningstar, MSCI, Sustainalytics judge companies on ESG standards. They allocate grades or scores to companies on their ESG practices. These grades and scores measure if the company is ESG compliant or not. For example, as per MSCI grading, companies are graded as follows – AA or AAA – Leader A, BBB or BB – Average B or CCC – Laggard Read More About ESG Fund