ESG investing
Also called: Environmental, Social and Governance investing · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
ESG investing means choosing investments by looking at a company's record on three things: Environment (such as pollution and carbon emissions), Social (such as how it treats workers and communities) and Governance (such as board independence and transparency). ESG investors weigh these alongside financial returns. The idea is that a company with a good ESG record carries lower long-term risk and does less harm. The main risk is greenwashing, where a company or fund claims to be greener than it really is.
Example
Since FY23, the top 1,000 listed companies in India must publish SEBI's Business Responsibility and Sustainability Report (BRSR). BRSR Core adds key metrics that must be checked by an outside party (assured). ESG rating providers have been regulated by SEBI since 2023, and ESG mutual fund schemes invest using these ratings.
Don't confuse with
- Green bonds: these are debt instruments whose money must be spent on environment-friendly projects. ESG investing is a wider way of choosing any investment, including shares.
Related concepts
- Mutual fund
- Net Asset Value
- Systematic Investment Plan
- Index fund
- Exchange-Traded Fund
- Gold ETF
- Fund of funds
- Real Estate Investment Trust
- Infrastructure Investment Trust
- Domestic institutional investors