Investor interest in ESG funds wane

Suresh P. Iyengar | | Updated on: Apr 23, 2022

Assessing sustainability /iStockphoto bakhtiar_zein | Photo Credit: bakhtiar_zein

Inflows in these schemes were only during the new fund offer period

Investors interest in ESG (environment, social and corporate governance) mutual fund is fast waning as there was no big differentiator. ESG funds recorded a net outflow of ₹315 crore in FY22 against an inflow of ₹4,844 crore logged in FY21, according to Morningstar India data.

Traditionally, ESG funds in India attract huge investment only at the time of new fund offer and there is no big traction after its launch.

Most of the large players in the mutual fund industry have reported an net outflow from the ESG asset under their management.

ESG funds of Kotak MF and ICICI Pru MF, which recorded the highest inflow of ₹1,518 crore and ₹1,422 crore in FY21, saw an outflow of ₹208 crore and ₹329 crore last fiscal.

Similarly, Aditya BSL ESG reported an outflow of ₹77 crore against an inflow of ₹902 crore in FY21, while Axis ESG stemmed the outflow to ₹264 crore last fiscal against an outflow of ₹381 crore registered in FY21.

SBI Magnum Equity ESG reported the highest inflow of ₹301 crore (₹82 crore) and Invesco India ESG registered inflow of ₹83 crore (₹575 crore). Quant ESG and Quantum India ESG inflows were at ₹26 crore (₹12 crore) and ₹10 crore (₹13 crore), respectively.

Inflows into ETF of Mirae Asset ESG declined to ₹13 crore (₹117 crore), while that of HSBC Global was down at ₹14 crore (₹622 crore). Baroda BNP, which launched ESG fund this fiscal, manages an asset of ₹115 crore.

Overall, the industry's asset under management of ESG was up 13 per cent at ₹12,448 crore last fiscal against ₹10,989 crore logged in FY21.

Globally, flows into sustainable funds continue at a rapid pace, with assets in sustainable funds exceeding $2.7 trillion as of last December-end.

Slow pick-up in India

Kaustubh Belapurkar, Director, Morningstar India, said it is still early days in India from an ESG perspective, but with the launch of ESG funds in the last few years, there are investable options available for investors.

Investors are yet to fully warm up to the concept of sustainable investing and most flows into these funds have come in during the NFO period, particularly in FY21 when there were several ESG Fund launches, he said.

However, acknowledging the growing interest around the globe for sustainable investing, the market regulator SEBI is looking to frame regulations around sustainable investing and disclosures.

Globally, asset owners such as pension funds have been vociferous supporters of ESG investing, but Indian pension funds are yet to show interest in these kind of funds.

Published on April 23, 2022
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