ESG Mutual Funds: Here is Everything You Need to Know

August 11, 2022

ESG Mutual Funds: Here is Everything You Need to Know

When selecting investments to add to their portfolios, performance is not the only thing that runs through investors’ minds. They are now factoring in ESG (environmental, social, and governance) principles in decision making. As a result, the number of ESG-focused investment options is growing pretty fast. 

Statistics show that the performance of ESG funds, such as Fidelity, outdo conventional funds by a huge margin. In this post, we take a closer look at ESG mutual funds to determine what they are and highlight some major examples that are cherished by investors. Furthermore, we will demonstrate the main attributes that investors look for when selecting ESG funds and why this is the best moment to integrate ESG into your organisation. 

What are ESG Mutual Funds?

These funds are thematic investment instruments that focus on stocks or bonds of firms that have already integrated ESG into their operations. This drive is based on the fact that investors are extending their focus to help make the planet a better place. By selecting ESG mutual funds, investors believe they can influence the behaviour of the top companies. For example, most ESG mutual funds insist on picking companies with low carbon footprints, a move that is aimed at helping the planet to reach carbon neutral status and reduce the risks of global warming. 

As investors go back to the drawing board and reconsider investment strategies for their portfolios, your company cannot be left behind. You need to ingrain sustainability in every department, action, and growth targets. Indeed, ESG sustainability comes with numerous benefits, such as cutting down the cost of operations and compliance to local policies. You also need to look for ways of improving ESG focus, and enhancing MSCI rating to win more local as well as global investing professionals.

Some examples of ESG mutual funds, all rated “A” or above by MCSI, include: 

  • Parnassus Core Equity Fund. 
  • Vanguard FTSE Social Index Fund.
  • Stewart Investors Asia Pacific Leaders Sustainability Fund.
  • KLP AksjeGlobal Indeks I.
  • iShares Global Clean Energy UCITS ETF.

How Investors Select ESG Mutual Funds 

Although ESG mutual funds might sound so similar, they are very different. As a corporate manager, company leader, or entrepreneur, it is important to understand what investors are interested in because this is what the funds enforce. So, let's check out some of the things that the investment professionals check. 

  • The Areas Where They Want to Have the Greatest Impact 

There are some investors who are very specific about where they want to have specific impacts. For example, many investors are concerned about global warming after seeing the havoc it is causing in terms of extreme climatic patterns, droughts, and loss of biodiversity. So, investors might want to see sustainable activities that are directly related to the area of interest, such as reduced carbon footprint and the use of eco-friendly sources of energy. 

Apart from the focus on climate change, other sustainability-related areas are social justice, enhancing biodiversity, supporting healthcare facilities development in less developed countries, and economic empowerment. Companies that target these areas easily convince clients to be part of them. 

  • The Principles  and Approaches Employed by the Mutual Fund of Interest 

When investors single out a specific ESG mutual fund, the goal is to see the planet transform into a better place. However, this assurance can only come through if the selected fund uses the right principles and approaches. So, investors factor in two most important things: ESG integration and stewardship of the funds. 

When the fund management considers ESG factors as part of its investment analysis, investors can be sure to make the right decisions on sustainability. Although a company’s stock might have an attractive price, a fund manager might opt to exclude it for engaging in unprofessional behaviour in its top leadership or social injustices. This is the type of commitment that every investor wants to see. 

ESG integration goes together with investment stewardship. This is equally important because managers are able to raise concerns, seek clarifications, and make the right decision about the companies of interest. For example, a manager might reach out to specific companies to enquire about material risks to reduce the risk of taking a decision that goes against investors’ principles.

  • The Type of the ESG Fund 

ESG mutual funds fall into two major categories: active or index ESG funds. Index funds track ESG-appropriate indices and are less expensive compared to active funds. However, active funds use a more personalised approach, which means that they look at individual firms to determine if they are focused on sustainability. In some cases, investors might opt for mutual funds that focus on both options to increase their ESG impacts and optimise returns. 

Integrate ESG into Your Company’s operations

Now that you know the key factors that investors look for when selecting mutual funds, it is time for you to integrate ESG to your company. Here are some useful tips to make your company more sustainable: 

  • Decide to Adopt Sustainability and Make it Part of Your Company Operations 

As a company, your ESG journey should begin with a decision from the top leadership. The idea is to ensure it becomes a core agenda, just like product development and marketing.  The top leadership, probably the board of management, will emphasise that every department is focused on achieving sustainability. Also, ample resources will be allocated and every bit reported accurately.  

  • Develop a Clear ESG Strategy

When you create a good strategy for company sustainability, the managers of ESG mutual funds will take note and guide investors there. The strategy you select should be clear, helping every staff, department, and the entire company to move in harmony towards specific ESG goals. For example, your company might adopt a strategy for achieving carbon-neutral status within a specific timeframe. Put a lot of focus on positioning key performance indicators because investors will look at them and appreciate the progress made with time. 

  • Work with ESG Experts and Appropriate Sustainability Management Software 

When it comes to demonstrating your company’s focus on sustainability to win admiration of mutual, bonds and ETF funds’ management, appreciate that almost everything revolves around data. You need to collect data, analyse it and develop the right reports for stakeholders. This can be a challenge, especially when targeting top-notch accuracy for scrutiny by top ESG funds. To get it right, it is paramount to have appropriate sustainability management software. 

A good app can help you to automate data gathering, analysis, and report generation. The program can also help with data protection and cutting down the cost of operations. One of the best programs that you should consider is diginexESG, which is designed to work with companies of all sizes. 

At Diginex.com, we also have the best consultants that you can count to raise the value of equity for your company, win the support of stakeholders and preference by top funds. These are professionals in matters of sustainability, and you can count on us to help drive ESG adoption in the company. Contact us today for all the assistance you want. 

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