You can make great investment returns while also helping the world. Here are 20 ESG funds that have beaten the market over the past year. (2024)

FAQs

Does ESG increase investment returns? ›

ESG assets have higher valuations today if their systematic risk is reduced, and therefore they should have lower expected returns for investors in the future. Investors hold ESG assets because they hedge climate and social risk.

Is ESG Investing good? There's growing evidence that strong ESG practices can lead to long-term financial benefits for companies. On top of that, ESG investing also helps you to align your portfolio with your values and contribute to a more sustainable future.

In the last one year, these ESG theme based funds have offered an average return of 34.06%. Quant ESG Equity Fund remained the topper in the said period also and offered 50.67% return. ICICI Pru ESG Exclusionary Strategy Fund gave 41.31% return in the same time period.

ESG investing focuses on companies that follow positive environmental, social, and governance principles. Investors are increasingly eager to align their portfolios with ESG-related companies and fund providers, making it an area of growth with positive effects on society and the environment.

The differences have tended to be small, and even when the differences have been good for ESG funds, there were always some individual funds that did worse. The important lesson here is that there is no evidence that choosing ESG funds puts investors at any kind of disadvantage when it comes to risk or returns.

After weeks of intense debate, on 12 December, they emerged with a promise: 196 nations pledged to take on climate change with the goal of net zero emissions by 2050. For businesses, this signalled the beginning of the "ESG" movement: a focus on environmental, social and governance issues in business decisions.

However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.

It refers to a set of metrics used to measure an organization's environmental and social impact and has become increasingly important in investment decision-making over the years. But while the term ESG was first coined in 2004 by the United Nations Global Compact, the concept has been around for much longer.

Types of ESG Risks

Examples include causing water contamination, air pollution, or improper waste disposal. Social risks. These risks are associated with how an organization or government treats its employees, stakeholders, and the communities they serve.

Global investors pulled £8billion from woke ESG funds last year amid a backlash over greenwashing and the 'vague' promises they offer. Figures from industry group Calastone show the three-year boom in the funds focused on environmental, social and governance issues was now over.

Does ESG make money? ›

Until recently, investors were pouring money into ESG and sustainability funds — roughly $20 billion in 2019, $50 billion in 2020 and $70 billion in 2021, said Alyssa Stankiewicz, who researches ESG funds at Morningstar. And during that period, ESG actually generated better returns than traditional investments.

While ESG funds recovered in 2023, they mostly underperformed market benchmarks. For example in Europe, which has the biggest market, ESG-related funds rose about 16% on average, compared with the 24% gain of the MSCI World Index and the 16% return of the STOXX Europe 600 Price Index.

BlackRock is not owned by a single individual or company. Instead, its shares are owned by a large number of individual and institutional investors. The biggest institutional shareholders such as The Vanguard Group and State Street are merely custodians of the stock for their clients.

Fortunately, your financial plan may better support your ethical priorities if you focus on ESG investments. So, if environmental and social responsibility are important to you, ESG investments could be worth pursuing in the coming years, even if the returns are slightly lower than other investments.

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. Companies that realign to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.

For [Berg et al. (2022a)], MSCI ESG is the only score to have a significant influence on investors holding and a slow/low impact on the returns. For [Pedersen et al. (2021)], ESG measures predict returns positively, negatively, or even close to zero in the case of commercial ratings, for example.

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty.

ESG investments have shown to increase profits by 9.1% over the last three years, according to research from accountancy firm Moore Global. (G) encourage accountable and transparent organisational governance.

Globally, ESG Leaders earned an average annual return of 12.9%, compared to an average 8.6% annual return earned by Laggard companies. This represents an approximately 50% premium in terms of relative performance by top-rated ESG companies.