In the last decade, we have witnessed major socio-political crisis and natural disasters due to the climate change worldwide. More recently, it has been the Coronavirus pandemic that brought the globe to a standstill in 2020, for which we are still facing the consequences financially, economically and socially.
Such alarming events have spawned global uncertainty, affecting the market dynamics, stock values, reforms and policies, corporations revenue, job opportunities, as well as the average man’s purchasing power; this highlights the impetus for all of us to do our bit through various means.
Moreover, certain large corporates have been in the limelight recently for breaching norms relating to privacy and security, not following prudent managerial practices, etc., thus disregarding their responsibilities to external stakeholders and customers.
With increased awareness around eco-consciousness and sustainable living, consequently, many investors have turned their attention to mutual funds that offer investment products under the Environmental, Social, and Governance (ESG) theme. Sustainable investing is an umbrella term for ‘ESG investing’, which involves being responsible as an investor and investing in companies that follow ethical practices on environmental concerns, social responsibility, and corporate governance with a vision for better tomorrow.
These are funds that not only invest in companies based on their quantitative and qualitative parameters, but also non-financial parameters, specifically the ESG aspects.
ESG investing was considered just another investment theme until now, but with changing scenarios, it has become essential to understand the risk involved with non-financial parameters of any company as well, before taking any investment decision.
You see, the companies following sustainable ESG practices construct a long-term and effective business model for better risk-adjusted returns. Therefore, a company that is responsible about its Environmental, Social, and Governance footprint can grow sustainably. Looking at this shift in pattern of investors with a sensitive approach towards ESG investing, various fund houses have launched ESG funds in the mutual fund space.
Invesco India Mutual Fund is the latest to launch an ESG fund – Invesco India ESG Equity Fund. The fund house manages various ESG centric investments being a responsible investor with a four-pronged approach of industry advocacy, investment integration, active ownership, and client focus.
On the launch of this fund, Mr Saurabh Nanavati CEO of Invesco India Mutual fund said, “As a firm, Invesco India Mutual Fund has been demonstrating the commitment globally to responsible investing by actively encouraging ESG inclusive practices across every area of business. Globally, there is a big difference between being ESG ‘Aware’ and ESG ‘Inclusive’. Our ESG inclusive practices are at the core of our equity investment process, which differentiates us.”
Table 1: Details of Invesco India ESG Equity Fund
|Type||An open ended equity scheme investing in companies following Environmental, Social and Governance (ESG) theme||Category||Thematic Fund|
|Investment Objective||To generate capital appreciation from a diversified portfolio of Equity and Equity Related Instruments of companies, which are selected, based on Environmental, Social and Governance (ESG) criteria as defined by our proprietary investment framework. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.|
|Min. Investment||Rs 1000/- and in multiples of Re 1 thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||
|Fund Manager||– Mr Taher Badshah
– Mr Amit Nigam
|Benchmark Index||NIFTY 100 Enhanced ESG TRI|
|Issue Opens:||February 26, 2021||Issue Closes:||March 12, 2021|
(Source: Scheme Information Document)
What will be the Investment Strategy of Invesco India ESG Equity Fund?
Invesco India ESG Equity Fund will primarily invest in equity securities of companies, which are selected, based on Environmental, Social, and Governance criteria as defined by the proprietary investment framework of the fund house.
The stock selection will be guided by the ESG framework and bottom-up approach; evaluation of ESG factors is an important input to the investment process with the help of financial research. The process involves company, industry, economic and technical analysis in alignment with the investment objective of the underlying fund.
As a part of the ESG framework to categorise the companies for stock selection, the companies will be scored on ESG risk score basis:
- The ESG risk for the companies will be measured on a scale of 1-3, whereby 3 denotes High Risk or Negative, 2 denotes Moderate Risk or Neutral and 1 denotes Low Risk or Positive.
- There will be a higher and at par weightage of 40% to Governance aspect for all companies/ industries. The balance 60% will be distributed between Environmental and Social aspect based on the relative influence of these aspects on the industry in which the company operates.
- The fund will maintain portfolio weighted average ESG Risk score at 1.5 or less. It will not consider companies with ESG Risk score of 2.5 of above, and companies whose ESG risk score on any of the three parameters (E/S/G) exceeds 2.
The fund will endeavour to focus on companies having sustainable businesses, adapting better ESG practices, and with potential of medium to long-term growth.
Invesco India ESG Equity Fund will invest in around 30 – 40 stocks across market capitalisation following a blend of growth and value investment style. The Scheme will primarily invest in large-cap stocks and will limit exposure to mid-cap & small-cap stocks up to 35% allocation of overall portfolio.
Under normal circumstances, asset allocation will be as under:
Table 2: Asset Allocation of Invesco India ESG Equity Fund
|Instruments||Indicative Allocation (% of assets)||Risk Profile|
|Equity and Equity related instruments of companies complying with ESG criteria||80||100||High|
|Other equity and equity related instruments||0||20||High|
|Debt*& Money Market Instruments/Units of overnight and liquid schemes of Invesco Mutual Fund||0||20||Low to Medium|
|Units issued by REITs & InvITs||0||10||Medium to High|
*Debt instruments may include government securities.
Who will manage Invesco India ESG Equity Fund?
Mr Taher Badshah and Mr Amit Nigam will be the dedicated fund managers for Invesco India ESG Equity Fund and Mr Neelesh Dhamnaskar will manage any investment in foreign securities.
Mr Taher Badshah is President and CIO (Equities) at Invesco Asset Management (India) Pvt. Ltd. and he has over 26 years of experience in financial services industry. Prior to this, he was associated with Motilal Oswal Asset Management Company Ltd. as Senior Vice President and Head of Equities and as a Fund Manager at Kotak Investment Advisors Ltd.
Mr Taher Badshah is a B.E (Electronics), MMS (Finance) from University of Mumbai, at present he manages these schemes: Invesco India Growth Opportunities Fund, Invesco India Small cap Fund, Invesco India Dynamic Equity Fund, Invesco India Contra Fund, Invesco India Focused 20 Equity Fund, Invesco India Equity & Bond Fund.
Mr Amit Nigam is Fund Manager – Equities at Invesco Asset Management (India) Pvt. Ltd. and he has over 20 years of experience in Indian equities markets. Prior to joining Invesco Mutual Fund, he was associated with Essel Finance AMC Ltd. as Head of Equities and BNP Paribas Asset Management India Pvt. Ltd. as Fund Manager.
Mr Nigam is B.E (Mechanical) and PGDM. The schemes currently under his management are: Invesco India Multicap Fund, Invesco India Infrastructure Fund, Invesco India Large cap Fund, Invesco India Tax Plan, Invesco India Equity Savings Fund.
Mr Neelesh Dhamnaskar is a Fund Manager and Analyst at Invesco Asset Management (India) Pvt. Ltd. He will manage investment in foreign securities and he has around 14 years of experience in equity research. Prior to this, he was working with ENAM Securities Direct Pvt. Ltd., KR Choksey Shares and Securities Pvt. Ltd. as Equity Research Analyst and Anand Rathi Securities Ltd. as Commodities Research Analyst.
Mr Neelesh is a Commerce Graduate and MMS (Finance) and he currently manages Invesco India Feeder – Invesco Pan European Equity Fund, Invesco India Feeder – Invesco Global Equity Income Fund, Invesco India – Invesco Global Consumer Trends Fund of Fund, Invesco India Infrastructure Fund and Invesco India Midcap Fund.
Fund Outlook – Invesco India ESG Equity Fund
ESG funds are gaining momentum among investors willing to contribute towards environment and society and investing in funds that offer sustainability. It is observed that the ESG criteria for stock selection leads to better and informed investment decisions, as it evaluates the parameters and mitigates the risk of non-financial aspects.
Notably, government and society are penalising irresponsible companies. There have been instances where large corporates that disregarded environmental, social, and governance issues and had to face consequences in the form of backlash/boycott of brands by consumers, closure of manufacturing units/projects, paying hefty fines, etc. All these factors affect the companies and create a downside risk for the investor’s wealth.
On the other hand, companies focusing strongly on ESG practices are leading with lower cost of production and benefit from supportive government measures & subsidies, which enhance the returns and sustainability in near to long term.
Therefore, investing in ESG funds can add substantial value to investors’ portfolio over the long term.
Being an actively managed fund Invesco India ESG Equity Fund’s performance will depend on its ability to identify stocks that score high on both ESG initiatives and growth prospects at reasonable valuations and to timely eliminate risky businesses. Investors looking for investment in Invesco India ESG Equity Fund should have a higher risk appetite and long-term investment horizon.
This article first appeared on PersonalFN here