The Flaring Returns of ESG Versus Traditional Holdings
ESG Mutual Funds in India: Aligning Investments with Values in 2025
1. The Rise of ESG Investing in India
ESG mutual funds have surged in popularity, driven by heightened awareness of climate change, social equity, and corporate governance. As of 2025, the ESG fund AUM in India stands at ₹10,946 crore, reflecting growing investor confidence in sustainable finance 10. Key drivers include:
Regulatory Push: SEBI mandates ESG disclosures for the top 1,000 listed companies, enhancing transparency 10.
Global Influence: Over 40 international ESG funds allocate 25% of their investments to Indian equities, signaling global trust in India’s ESG ecosystem 10.
Demand for Ethical Alignment: 60% of Indian investors prioritize ESG funds for risk-adjusted returns, compared to 29% globally
Performance Snapshot of Top ESG Mutual Funds (as of early 2025)
Fund Name | 1-Year Return | 3-Year Return | AUM (₹ Cr) | Expense Ratio |
ICICI Prudential ESG Exclusionary Strategy Fund | 31.89% | 18.55% | 1,528.70 | 1.01% |
Quant ESG Equity Fund | 28.27% | 20.99% | 312.26 | 0.79% |
Axis ESG Integration Strategy Fund | 25.91% | 10.73% | 1,334.37 | 1.27% |
SBI ESG Exclusionary Strategy Fund | 22.96% | 13.36% | 5,806.08 | 1.31% |
Mirae Asset ESG Sector Leaders FOF | 21.82% | 12.30% | 90.00 | 0.46% |
Source: Dhan.co
Comparative Performance: ESG Funds vs. Traditional Large-Cap Funds
While ESG funds have shown commendable returns, it's essential to compare them with traditional large-cap funds to gauge relative performance.
Fund Category | 1-Year Avg Return | 3-Year Avg Return |
ESG Funds | 32.50% | 15.07% |
Large-Cap Funds | 35.40% | 17.80% |
Source: Angel One
Risk-Adjusted Performance Metrics
Evaluating mutual funds requires looking beyond raw returns. Risk-adjusted metrics provide a more comprehensive view:
- Sharpe Ratio: Measures the return per unit of risk.
- Alpha: Indicates a fund's performance relative to its benchmark.
- Beta: Assesses a fund's volatility compared to the market.
Challenges and Criticisms
While promising, ESG investing faces hurdles:
Greenwashing Risks: Some funds overstate sustainability efforts without rigorous audits.
Limited Track Record: 70% of ESG funds launched post-2020 lack full market-cycle testing.
Underperformance in Corrections: 7/10 ESG funds lagged the BSE 100 TRI during the Sep 2024–Mar 2025 downturn 4.
Regulatory and Tax Landscape
SEBI Reforms: Expanded ESG disclosure norms and alignment with global standards (e.g., EU’s SFDR) 10.
Taxation: ESG funds follow equity fund rules—15% STCG (1–12 months) and 10% LTCG (over ₹1.25 lakh post-12 months) 10.
Key Considerations for ESG Investing
- Alignment with Personal Values: ESG funds allow investors to support companies that prioritize environmental sustainability, social responsibility, and strong governance.
- Performance Metrics: While ESG funds aim for positive impact, it's essential to assess their financial performance and compare them with traditional funds.
- Long-Term Commitment: ESG investments often yield better results over the long term, so patience is crucial.
Conclusion
ESG mutual funds offer a pathway to invest responsibly without compromising on returns. As the world moves towards sustainable practices, aligning your investments with these values can be both financially rewarding and personally fulfilling. Before investing, consider consulting with a financial advisor to ensure that ESG funds align with your overall investment strategy and financial goals.
Disclaimer: Mutual fund investments are subject to market risks. Past performance is not indicative of future results. Please read all scheme-related documents carefully before investing.
