ESG Funds are still losing money; in the June quarter, Rs 520 billion was withdrew

According to a Morningstar analysis, the country’s sustainable or ESG (environmental, social, and governance) funds had an outflow of Rs 520 crore from April to June of current fiscal year.

This was more than the 470 crore rupees that were taken out of similar funds in the previous quarter.

“While early fund launches have generated a lot of interest and money flowing into them, we haven’t seen any after that for sustainable funds. This has led to a lack of a quarterly pattern that can be seen, the research said.

The year-to-date withdrawal for 2023 was Rs 1,060 crore as opposed to Rs 1,020 crore the year before, continuing the pattern of outflow. In comparison, the whole fund market has received investments of Rs. 1.83 lakh crore this year.

According to the analysis, the coronavirus pandemic significantly increased investor interest in and fund launches for sustainable funds throughout the world.

“While the Indian sustainable fund industry is still in its infancy, we have seen a similar trend with a few new fund launches since COVID-19. Since that time, no new funds have been launched in the last 24 months, according to the research.

Given that no new funds have been launched in the last 24 months, assets in Indian sustainable funds have remained stable in the Rs 10,000–12,000 crore range. According to the report, the sustainable fund’s assets were worth Rs 11,040 crore as of June 2023, an insignificant 1.9% rise from the previous year.

In India, there are just 11 sustainable funds, which makes it a very crowded industry. The top five sustainable funds account for 87% of all sustainable fund assets, with the biggest fund—the oldest and most established sustainable fund, SBI Magnum Equity ESG strategy—accounting for 45% of all sustainable assets.

There are now two global sustainable feeder funds, one passive environmental, social, and governance exchange-traded fund, and eight actively managed sustainable funds. It’s interesting to note that 97% of all sustainable fund assets come from active funds.

The Business Responsibility Sustainability Reporting, or BRSR, rules for listed businesses were introduced during the last several years by capital markets regulator Sebi. The top 1,000 listed companies are required by these regulations to disclose their sustainability efforts.

Sebi has announced a set of key indicators, also known as BRSR Core, on which firms are needed to demonstrate reasonable certainty in an effort to improve these disclosures.

Tejas Khoday, Co-Founder and CEO of FYERS, predicted that Sebi’s ESG standards will enhance the reliability and quality of ESG disclosures and ratings in India and foster a corporate sector-wide culture of ethical behavior.

In order to prevent “greenwashing,” the regulator has additionally created fund categories with particular sustainable techniques and set disclosures for sustainable funds.