ESG investing considers environmental, social and corporate governance criteria to generate risk-adjusted returns
Ranked as the 4th best Fund Manager in the world under the age of 40 by Citywire in 2017, Chirag Mehta is a Senior Fund Manager, Alternative Investments at Quantum Mutual Fund. He has more than 18 years of experience and has been managing the Quantum India ESG Equity Fund since its inception in July 2019.
What are ESG funds? How is ESG investing gaining traction in India?
ESG investing considers environmental, social and corporate governance criteria to generate risk-adjusted long-term returns with positive societal impact. ESG aims to achieve the triple bottom line—good for people, planet and profits.
It is a structured approach for measuring sustainability by identifying potential opportunities and unearthing risks hidden beneath a company's business activities. This indeed imparts a material impact on a firm's valuation.
According to data released by the Association Of Mutual Funds In India (AMFI), combined assets under management (AUM) of existing ESG funds in India was Rs 9,516 crore in December.
Compared to other mutual funds, how is ESG performance? How has Quantum India ESG performed?
Trends shows, ESG index has not only outperformed the traditional Equity index over the long term but has also protected downside risk better. This was well observed during the pandemic.
Quantum India ESG Equity Fund has helped investors deliver risk-adjusted returns over the long term while also mitigating downside risks better.
How does Quantum India ESG Equity Fund provide investors with an opportunity to contribute to environment and sustainability?
By demanding and choosing products and businesses that are environmentally friendly and ethical, and avoiding those that are not, investors can pressurise enterprises to do the right thing for the planet and society.
We believe that a company's track record in handling environmental, social and governance aspects is increasingly becoming an essential consideration for investing. However, for an average investor, analysing these aspects could be challenging, primarily due to lack of resources like time and information.
Quantum is one of the first AMCs to introduce ESG as a fund in India. How is it different from others?
What's unique about Quantum is that it banks on its own proprietary research. It has evolved over the last five years as we went through our own learning curve in the ESG space. This means investors can benefit from years of experience and research from the process of stock selection based on ESG principles.
How do you identify companies that meet ESG standards? Are there any parameters to check them?
We subjectively evaluate more than 200 parameters across the environment, social and governance domains while screening companies.
• 70% weight is given to companies on their ESG performance relative to their peers and national/global regulations on material ESG aspects.
• 30% weight is given to companies on their levels of disclosures provided in their sustainability reports/business responsibility reports/annual reports.
Governance sits at the heart of our analysis because we believe governance shortcomings usually go hand in hand with poor performance on the social and environmental fronts.
While computing ESG scores, 50% weightage is given to governance and the remaining 50% to environmental and social aspects.
When allocating money to equity funds, how much would you allocate to ESG funds?
So far, the track record of the ESG index has been encouraging. We believe that the long-term Quantum India ESG Equity fund can deliver good long term risk-adjusted returns. Investors can start allocating 20% of their equity portfolio to ESG funds.
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