Sustainable Investing: Here’s All You Need To Know About Environmental Funds

A mutual fund is a pool of money through which one can buy various assets including stocks, bonds etc. A mutual fund is mostly for those who do not dedicate their full-time into investing, and so, a professional focuses on their investing. Through mutual funds, one can pick and choose the fund that best suits one’s needs. Saumya Shah, Founder of investment platform ‘Tarakki’ said in an Instagram live session on March 27, that an equity fund comprises high risks and high returns, whereas a debt fund consists of low risks and low returns. According to Mr Shah, ESG or environmental, social, and governance funds are gaining prominence in the market these days as more young investors are adopting the concept of sustainability. (Also Read: Balancing Income And Expenses: How To Create A Monthly Budget And Stick To It )

Sustainability related to the environment, social causes, or even following business ethics have gained importance and become critical for investors. ESG ( environmental, social, and governance) funds are those funds whose allocation of assets primarily includes the bonds and shares of only those companies that are evaluated and have fulfilled the criteria of environmental, social, and governance.

The three pillars of ESG funds –  environmental, social, and governance, form the basis of sustainable investing. This is because the ESG companies are given the tag only after they are being assessed stringently on the basis of sustainability. A company is said to be ESG compliant if it fulfills the criteria of environmental, social, and government standards.

Hence, the ESG funds evaluate the firms and choose to invest in the share of only those companies that are ESG compliant. Mr Shah explained that ESG compliant means that the particular company should not contribute to pollution or waste, and must not be involved in activities that are harmful to the environment. For the ‘social’ criteria, the company should take care of its employees and must not be involved in activities such as labor exploitation etc. For fulfilling the ‘governance’ criteria, the company should not have issues such as lack of tax transparency or lack of business ethics, he added.