5-Step Strategy To Keep The World And Your Pocket Green With ESG Investing

We are in an era when the impact of our choices is more visible than ever, and can also reflect in our investments. Aligning your investments with your values isn’t just a noble idea but a strategic approach that can drive financial return and positive change.

When you invest in a stock, you don’t just invest in the company but also their fundamentals. If the company is doing good work, you earn money while supporting the growth. Similarly, if the company earns money with shady ideologies, then your investment enables them. This is where ESG (Environmental, Social, and Governance) investing comes into play.

What is ESG Investing?

ESG investing is an investment strategy considering a company’s environmental stewardship, social responsibility, and governance practices alongside traditional financial metrics. It’s a way to invest in companies that are not only financially sound but also committed to long-term sustainability and ethical practices.

Environmental Factors

When discussing the ‘E’ in ESG, we examine how a company interacts with the environment. Does it minimize pollution? How does it manage waste and resources? Is it taking steps to combat climate change? These are critical questions for investors who care about the planet’s health.

Social Factors

The ‘S’ in ESG focuses on how a company manages relationships with employees, suppliers, customers, and the communities where it operates. It’s about ensuring fair labor practices, diversity, and inclusion and contributing positively to society.

Governance Factors

Lastly, the ‘G’ stands for governance, which assesses a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Good governance is a sign of a company’s integrity and accountability.

Why ESG Investing Matters

ESG investing is more than a trend; it reflects a growing awareness that businesses have a role in addressing global challenges. By choosing to invest in companies with strong ESG practices, investors can influence corporate behavior and foster a more sustainable and equitable world.

Moreover, ESG investing can help investors avoid companies facing financial risks due to irresponsible practices. It’s a proactive way to manage risk and seek out well-positioned companies for long-term success.

The Indian ESG Landscape

India’s approach to ESG investing is shaped by its unique economic, environmental, and social challenges. With a population of over 1.3 billion, the country faces pressing issues such as pollution, resource scarcity, and social inequality. These challenges have catalyzed the growth of ESG investing to foster sustainable development and inclusive growth.

Market Analysis and Growth

The ESG investment market in India has grown significantly in recent years. From 2019 to 2022, the assets under management (AuM) of ESG-focused funds in India rose from Rs 22 billion to around Rs 124 billion. This surge reflects the increasing interest among Indian investors in sustainable and responsible investment options.

How to Get Started with ESG Investing

Getting started with ESG investing is easier than ever. Many brokerage firms offer ESG-focused funds, and robo-advisors have ESG options for those who prefer automated investing. Here’s how you can begin:

Step 1: Open an Online Brokerage Account

• Choose a brokerage account: Review features, available assets, and costs related to the investment platform. Evaluate the stock and fund screeners for their ESG criteria.
• Begin the application process: Provide your personal and financial details during the online application.
• Fund your account: Link a bank account and transfer funds to your brokerage account, which may take a few days.

Step 2: Understand Your ESG Criteria

• Identify what ESG means to you: Determine the most important environmental, social, and governance issues. Like, are you someone who supports green energy or sustainability? Maybe you believe more in fair trade practices. You must find the companies that align more with your beliefs and invest in them.
• Research ESG investments: Don’t just rely on what the companies state. Do your research to find the grey areas in the claims, find out if the chargers missing in the smartphone box are good for the environment or just another technique to make the customer pay extra, and check if your environmentally friendly delivery comes with a human cost or an inhumane shift for employees.

Step 3: Select Your ESG Investments

• Pick your assets:  If satisfied with the research outcome above, you can pick the stocks, bonds, or funds that align with your ESG values and investment goals.
• Buy shares: Proceed to purchase shares in the selected ESG assets.

Step 4: Diversify Your Portfolio

• Spread your investments: Now, as your investment is doing justice to others, do justice to your portfolio by diversifying it to minimize the risk and maximize the returns on the investments. 

Step 5: Monitor and Adjust

• Keep an eye on performance: Regularly check the ESG performance of the companies in which you have invested. Maybe the company is doing good work, but it cannot sustain itself in the market, so it might run into losses. Or it can be the other way around. The company is providing you with the practice, but there are some suspicious activities happening under the hood to earn profit and that might not sit well with your ESG needs.
• Adjust as needed: Be prepared to make changes to your portfolio if a company’s ESG performance changes. Be it a change in numbers or the company’s SOPs, both beg you to look back into your investments and correct the course.

How to pick stocks according to your requirements?

Investing according to ESG principles involves selecting companies or funds with strong environmental, social, and governance practices. Some companies are highly focused on ESG work like these examples:

ESG-Focused Companies

• Havells India: Known for eliminating the use of trace radioactive isotopes from its lighting range and having zero water discharge facilities.
• Godrej Consumer Products: Committed to increasing its renewable energy portfolio and reducing greenhouse gas emissions.

ESG Stocks

• Tata Consultancy Services Ltd (TCS): Rated high on ESG factors, focusing on quality, valuation, and price trends.
• HDFC Bank Ltd: A leading bank with strong ESG initiatives.
• Infosys Ltd: IT giant with a commitment to sustainability and ethical governance.

Many such companies are listed on ESG indices like the Dow Jones Sustainability Index (DJSI). But doing such quality research and spending time tracking market activities is not everyone’s cup of tea. For such people, there are funds run by AMCs their experts invest money in the right stocks to make sure that your investment gets the right returns with justice to ESG criteria following are examples of such funds.

ESG Mutual Funds and ETFs

• Aditya Birla Sun Life ESG Fund: A fund that invests in companies following ESG criteria.
• Axis ESG Fund: Focuses on companies with sustainable business models and practices.
• ICICI Prudential ESG Fund: Invests in a diversified portfolio of stocks selected based on ESG criteria.

The Future of ESG Investing

As awareness grows and more investors demand responsible corporate behavior, ESG investing is likely to become even more mainstream. It’s a powerful way for investors to make a difference, aligning their financial goals with their desire to contribute to a better world.

In conclusion, ESG investing is not just about the returns—it’s about being part of a movement towards a more responsible and sustainable future. It’s an investment in our planet, society, and collective well-being.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

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