ESG Funds and Ethical Investment: A Study in Indian Context

Environmental, Social and Governance (ESG) criteria and ethical investment in modern finance are gaining more importance, reflecting a growing awareness of the impacts of investment decisions. ESG is a framework to evaluate the sustainability and societal impact of investment. Environmental criteria consider how well an organization takes care of the environment. Social criteria, which address labour standards, diversity, human rights and consumer protection, look at how a business handles its interactions with communities. Aspects of governance include a company’s leadership standards, CEO compensation, internal controls, audits, and shareholder rights. ESG criteria have emerged as an effective strategy to align environmental objectives with financial goals, ultimately contributing to the nation’s overall betterment. People are now opting to purchase and create products that are both financially viable and environmentally sustainable. In the case of investment and portfolio creation, investors show an inclination towards ethical investment. In order to match investment portfolios with an investor’s ethical principles and pursue competitive financial returns, ethical investing techniques incorporate ESG criteria. These tactics include impact investing, which aims to create particular environmental or social benefits beyond financial returns, positive screening, which actively chooses companies with strong ESG performance and negative screening, which eliminates businesses or industries that do not adhere to certain ethical standards. Investors are increasingly recognising that ESG factors can be material to financial performance, affecting risks and opportunities. This study examines the principles behind ESG criteria, the methodologies for implementing ESG strategies, the ethical dilemmas involved and the impact on financial performance in the Indian context. The paper concludes with best practices for investors and recommendations for further research.