What Is ESG Investing?

ESG stands for Environmental, Social and Governance. ESG Investing (also known as “socially responsible investing,” “impact investing,” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social,  and governance (ESG) factors or outcomes. ESG investing is widely seen as a way of investing “sustainably”—where investments are made with consideration for the environmental and human wellbeing, as well as the economy. It is based  on the assumption that the financial performance of organizations is indirectly affected by environmental and  social factors.

Looking at global trends, the United Nations Principles for Responsible Investment (UNPRI) has reported an increase of 26% in ESG assets in 2021, as against 22% in 2019. By March 2021, 601 signatories (asset owners) of the UNPRI group managed more than $121 trillion. The global inflows in sustainable funds have increased by 88%, in which Europe has accounted for almost 80%, followed by the United States, Asia (excluding Japan), Australia/New Zealand, Japan, and Canada.

ESG investing in India has been steadily gaining popularity in the last five years, but the efforts made for this purpose are at an amateur stage. It has been estimated that inflows in ESG mutual fund schemes in India have increased by 76% in 2021, increasing from Rs 2,094 crore to Rs 3,686 crore in 2019-20. In addition to this, in 2020, India’s large asset management companies (AMCs) have launched schemes that have a clear focus on ESG aspects. In the stock indices too, the sustainability themed index NIFTY ESG 100 has outperformed the NIFTY 100 between 2020 and 2021. Further, anticipating stable, long-term risk-adjusted returns, pension funds too have started integrating the ESG factor.

Why ESG Investing : –

The companies that rank high on ESG factor are the ones which are doing well by doing good. The question investors should ask is whether high ranking ESG companies actually make money and whether that translates into creating wealth for shareholders. In other words, any investor who is focusing on ESG investing strategy has to identify if the ESG investing strategy performs better than non-ESG strategies. If we look at performance on bourses for some of the companies such as EKI Energy, which is a pre-eminent brand in the realm of “climate change, carbon credit and sustainability solutions” across the globe aspiring to render strategic solutions for helping businesses and organizations to achieve their climate ambition, it is more than impressive. EKI Energy shares have risen by more than 8300 per cent in just one year and the stock continues to gain in every trading session. The company has a simple objective: To rehabilitate earth to a low carbon and climate resilient global economy. Kotyark Industries is yet another example of a company that tends to benefit from the ESG investing trend and is turning out to be a multibagger.

companies that stand to gain from carbon credits will remain robust.  Says Mohit Jangir from Jaipur, an investor and founder of Investing Hut, “From my years of experience of equity investing, I have realized that investor should be focused on three things while identifying market beating companies – 1. Business, 2. Team and 3. Valuations. The trick is always to find a good business with right set of management team and the stocks should be available at reasonable valuations. Once you identify such a company, then it is only a matter of holding on to such stocks with patience and conviction. When it comes to ESG investing, my thoughts are clear. ESG -ve sectors such as oil & gas, metals & mining, and power generation (non- renewable), which contribute significant GHG emissions and have social implications, are more sensitive to the ESG metrics. ESG +ve sectors, companies which are working in sectors such as IT, electric vehicles, clean energy, green chemicals, waste management, etc., can be considered while investing in the ESG framework. Investors should take an optimistic view in the long-term on consumer discretionary, clean energy/green hydrogen, APIs (selective). Manufacturing sector is expected to grow aggressively owing to the government support.

Opportunities in Semiconductor Industry : –

Semiconductors are manufactured in a fabrication plant (also called a fab or foundry) of a factory. Fabs require machinery which are very expensive. Integrated circuits, transistors, solar cells and other computing materials would not exist without semiconductors. Because of this, semiconductor materials have a significant impact on the computing and electronic industry. Adoption of Artificial Intelligence (AI) and Internet of Things (IoT) will be the major factor to accelerate industrial adoption of semiconductors in use of new technologies.

 Opportunities @ Airbag manufacturers  : –

The Government of India has made it compulsory for the automobile industry to increase the number of airbags in cars. This has given a push to the airbag manufactures as well as companies supplying raw materials used in production of airbags. The three main companies that manufacture airbags are Bosch, Minda Industries and Rane Madras. The materials used for manufacture of airbags are nylon and sodium azide. The major producers of nylon are Century Enka, Aym Sintex and SRF. The second material needed to produce airbag is sodium azide and the major player in this space is Alkali Metal.

 Conclusion  : –

Clearly, the investing themes that are emerging for 2022 and beyond are ESG, ethanol, digital AI, semiconductor and EV. For investors, zeroing on opportunities in these growth areas can be a daunting task as the valuations are already stretched for most of the stocks. Also, excessive optimism can play a spoilsport while investing in these new sector stocks. It is possible that poor quality stocks from these trending sectors have already gone up and that can lead to underperformance.

Looking at the emerging investment themes, we have handpicked our top bets for 2022.

1. Borosil Renewables Ltd
2. Praj Industries Ltd.   
3. Tata Motors Ltd.  
4. Rane Madras         

Disclaimer : –  This post in only for educational purpose, kindly take expert advise before investing real money in to market. ISFM – Best Stock Market School is not responsible for any kind of risk.