Should You Invest In ESG Funds? Here's What You Need To Know
ESG funds let you invest in companies that care for the environment, treat people fairly and follow ethical business practices.
ESG stands for Environmental, Social and Governance and it is at the heart of what is known as sustainable investing. In simple terms, ESG investing means putting your money into companies that care about the planet, treat people fairly and follow strong ethical rules in how they run their business.
The 'E" in ESG looks at how a company affects the environment—like whether it is reducing pollution, saving energy, or managing waste responsibly. The 'S" focuses on how companies treat their employees and contribute to society. The 'G" covers how the company is managed, whether it follows rules properly and whether it acts with honesty and fairness.
In ESG investing, it is not just about profits—it is about how those profits are earned.
What Are ESG Funds?
ESG funds are mutual funds or ETFs that invest in companies with strong ESG practices. These funds encourage businesses to be more responsible towards the environment and society. They generally include companies that are doing good things in areas like clean energy, worker rights, or fair governance.
Thematic Funds – Focus on specific themes like renewable energy or gender diversity.
Impact Funds – Invest in companies actively working to create a positive impact, like healthcare or education.
How Do ESG Funds Work?
– Screening Process: First, ESG funds filter out companies that are involved in harmful or unethical businesses—like tobacco, weapons, or gambling.
– Investment Allocation: Next, they invest in companies across different industries that follow good ESG practices—such as using clean energy or ensuring fair treatment of workers.
– Performance Monitoring: Fund managers regularly check how these companies are performing—both financially and in terms of ESG—to ensure the investments stay aligned with the fund's goals.
Benefits of ESG Funds
Ethical Investing – Your money supports companies doing the right thing.
Long-Term Growth – Companies with strong ESG values often perform better over time.
Lower Risk – Avoids firms involved in scandals or risky behaviour.
Diversification – ESG funds invest in different sectors, offering balance to your portfolio.
Should You Invest?
In recent years, especially after COVID-19, interest in ESG investing has grown—especially among people who care about how businesses affect the world.
While ESG is still a developing idea in India, it is catching on fast. With increasing regulations, foreign investor interest and public awareness, ESG investing is no longer optional—it is becoming the norm.
For long-term investors, ESG funds offer a smart way to grow money while supporting companies that care about people and the planet.
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July 24, 2025, 13:33 IST
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