Page 33 - Banking Finance November 2025

A R T IC L E
ARTICLE
invest in renewable energy, energy efficiency, and
environmentally sustainable practices.

Green bonds, which are fixed-income securities used to fund
projects that have a positive environmental impact, have
become a popular investment option. These bonds finance
initiatives such as solar power plants, wind farms, and
energy-efficient infrastructure, offering investors a way to
contribute to the global fight against climate change while
earning returns.

A notable development is the launch of India’s first ESG
Mutual Fund by SBI Mutual Fund in 2020. This fund
exclusively invests in companies that meet high ESG
standards, focusing on sectors such as clean energy, waste and robust shareholder rights—are seen as better
management, and corporate governance. As of 2023, the investment opportunities. Weak governance can lead to
scandals, regulatory penalties, or financial mismanagement,
fund has seen significant growth, with assets under
making such companies riskier in the long run.
management exceeding INR 4,500 crore (USD 605 million).
This reflects the rising investor interest in sustainable
investing in India. Performance of ESG-Focused Investments:
A common misconception about ESG investing is that it
Social and Governance Impact on Investment: compromises financial returns. However, several studies
have shown that ESG-focused investments can perform on
Social factors in investments focus on a company’s
interaction with its employees, customers, and par with, or even better than, traditional investments. A
report by Morgan Stanley found that sustainable funds
communities. Companies that uphold fair labor practices,
encourage diversity, and actively engage with their provided similar returns to non-sustainable funds, while also
communities are highly regarded by ESG-focused investors. showing lower market volatility.
For example, an investment firm may prioritize businesses
that offer favorable working conditions or make a positive In 2022, a report by Morningstar India showed that ESG-
focused equity funds in India outperformed their non-ESG
impact on the communities in which they operate.
counterparts, delivering an average return of 19.4% over a
three-year period, compared to 16.7% for non-ESG funds.
For example, Tata Consultancy Services (TCS), a leading IT
services company, is widely regarded for its robust corporate This demonstrates that ESG investments not only align with
governance and social responsibility initiatives. As a result, ethical values but also offer competitive financial returns.
The growing demand for these products indicates a shift in
TCS is a top holding in many ESG-focused portfolios.
how both institutional and retail investors view the long-
term potential of sustainable investing.
Social considerations, such as gender equality and community
development, are also becoming central to investment
Companies with strong ESG performance are often more
strategies. Indian companies are being evaluated on how
well they contribute to societal goals, such as providing fair resilient, better prepared for regulatory changes, and less
wages, promoting diversity, and reducing income inequality. exposed to long-term risks such as environmental
Investors are rewarding firms that have strong social degradation or social unrest.
initiatives, reflecting a growing awareness of the social
aspect of ESG. Challenges in ESG Investment:
One of the significant challenges in the Indian market is the
Governance is also a critical consideration in ESG investing. lack of comprehensive ESG disclosure by companies. The
Companies with strong governance structures—such as Securities and Exchange Board of India (SEBI) has mandated
transparent financial reporting, a diverse board of directors, Business Responsibility and Sustainability Reporting (BRSR)

30 | 2025 | NOVEMBER | BANKING FINANCE