Spot The Difference Between ESG, Non-ESG Mutual Fund Schemes?

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At first glance there seems to be little difference between any of India’s eight ESG-themed mutual fund schemes and the multitude of large-, multi- or flexi-cap ones.

The top three schemes focused on environment, social and governance objectives—SBI Magnum ESG Equity Fund with Rs 4,528 crore in assets under management as on Oct. 31, Axis ESG Equity Fund with Rs 2,176 crore AUM and ICICI Prudential ESG Fund with Rs 1,826 crore AUM—all count mostly IT and finance companies as their top investments. Namely, Tata Consultancy Services Ltd., Infosys Ltd., Wipro Ltd., HDFC Bank Ltd., ICICI Bank Ltd. and Kotak Mahindra Bank Ltd., among others.

Select retail, consumer goods and pharmaceutical businesses offer marginal variation in the top five holdings.

The schemes sector allocation data underscores this. At SBI, financial services and IT constitute 50% of the scheme portfolio in value, at Axis the two sectors amount to 60%, and at ICICI over 35%.

The story repeats itself at Quantum India ESG Equity Fund, where a much smaller play at Rs 54 crore means more frugal allocations but software, and finance constitute over 35% of the scheme’s holdings.

The size and liquidity of top IT and finance shares may offer some valid justification. But the likeness must make it hard for investors to tell ESG schemes apart from non-ESG ones?

Is that why ESG-related assets under management barely top Rs 12,000 crore, as per SEBI data. That’s under 1% of total equity mutual fund AUMs.

In an interview to BloombergQuint, Chirag Mehta, senior fund manager of alternative investments at Quantum Mutual Fund, says ESG is a new concept and investors aren’t yet familiar with the terminology. Besides, many ESG schemes are new and don’t offer a long-enough track record to draw faith.

Mehta says top companies and sectors have better disclosures, hence the sameness among schemes’ top holdings. “If you look at the next five (stocks) they are very different exposures that you will not see in a typical equity scheme.”

Mehta points to Tata Communications Ltd., the eight largest investment of his scheme. About 20-25% of the exposure of the Quantum scheme is to mid-cap companies as well, he adds.

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