Do ESG Funds Deliver on Both Values and Returns?
Have you been hearing a lot about ESG funds lately? If yes, you must be thinking what’s the reason behind their popularity and if they really offer a good opportunity to grow your money while supporting good causes. ESG stands for Environmental, Social, and Governance.
These funds invest in companies that follow responsible practices like reducing pollution, treating employees fairly, and maintaining good corporate governance. But do these funds deliver on both your values and financial returns? In this article, let’s break it down!
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What are ESG Funds?
ESG funds invest in businesses that keep sustainability and ethics in mind. Instead of just looking at profits, these companies consider environmental impact (like lowering carbon footprints), social factors (workplace safety and diversity), and governance (how well the company is managed). Investors like you who want to support businesses that improve society while hoping for good returns try to find such mindful companies. Many AMCs, such as Mirae Asset MF, ICICI Prudential, Axis, and more, have issued ESG funds.
ESG investing has gained attention recently in India. Regulatory bodies like SEBI have encouraged transparency and sustainability reporting and are helping to make ESG investing more credible in our country. We have many ESG mutual funds and indices, with each of them offering different ways for us to invest with these criteria.
Do ESG Funds Perform Financially?
One big question is if ESG funds give returns compared to regular funds. According to a report by Morgan Stanley, sustainable funds posted a median return of 12.5% in the first half of 2025, up from 9.2% returns of traditional funds across the globe.
However, ESG funds can be more volatile because they often focus on specific sectors like renewable energy, which can face market fluctuations. Also, some ESG funds have higher fees, which could reduce your net gains over time. So, while they can perform well, you should check the fund’s fees and sector focus before making any decisions.
What are the Benefits for You as an Investor?
If you decide to invest in ESG funds, it means you get more than just financial returns. You invest in companies that help tackle environmental issues, promote social welfare, and run ethically. This can provide a sense of purpose along with growing your wealth.
Another benefit comes during volatile markets. ESG funds have been shown to perform relatively well during market downturns because companies committed to good governance and social responsibility tend to manage risks in a better way.
Challenges and Risks of Investing in ESG Funds
While ESG investing is growing, there are some challenges you should know about. One issue is “greenwashing,” where companies appear more sustainable than they really are. Sometimes, the data on ESG performance is not accurate or trustworthy.
This can make it harder to assess which funds are genuinely responsible. ESG funds might also lack diversification because they avoid certain sectors, which could raise the risk.
Regulatory changes in India also affect how ESG funds perform. For example, changes in ESG reporting rules or subsidies for green sectors might impact fund returns.
If you want to invest in ESG funds, look for funds managed by reputable asset managers with clear ESG criteria. You can also invest in these funds via mutual fund platforms or apps, often through systematic investment plans (SIPs) that suit long-term goals. Make sure that you consider fees, the fund’s track record, and how it balances ESG goals with financial growth before you invest.
Conclusion
Yes, ESG funds can deliver on both values and returns if you choose wisely and stay invested for the long term. India’s ESG investment space has shown strong growth, and it is supported by regulations, increasing investor interest, and competitive performance. These funds will help you align your money with issues you care about, like sustainability and social justice, while seeking solid financial gains.
Make sure you understand the risks and pick funds that suit your goals.
