What is ESG investing and how is this framework changing the investment landscape? MintGenie explains

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Also Read: Why an ESG-conscious investing ecosystem is very important for India High ESG score of a company typically indicates a business which is conducted with utmost consideration for environmental protection, nurturing societal values and protecting stakeholders’ interest. Such businesses follow high governance standards and transparency. Going forward, the importance of ESG-focused investing will receive further fillip.

As interest rates come down structurally, investors are expected to allocate more money to equities in the quest for returns. Many of these investors may not be aggressive and would like to reduce risks. The best way to achieve this is to invest in stocks of companies with high ESG scores or products that invest in these stocks.

Also, a robust system that penalises polluters and rewards performers is going to push investors towards high ESG score businesses.

Also Read: Mutual funds: What are ESG sub-categories allowed as per Sebi framework? MintGenie explains In COP26 held in Paris in November 2021, India had committed to a net-zero emission by 2070. In FY26, Indian Carbon Credit Trading Scheme is expected to begin. Companies which beat their targets will be entitled to carbon credits and firms that underperform need to buy those credits.

This will have an impact on profitability of companies and companies will have to invest more in cutting their emissions. While environmental responsibilities drive investors and promoters’ actions, the focus on societal values are also catching up. Employee policies of companies, product positioning and social responsibilities will play an important role.