Indian Economy News

Highest-ranked ESG fund in the UK is betting big on India

A large bet on India as a growth market for low-carbon projects has just brought a UK fund to the top of the ESG rankings for this year.

According to Morningstar Inc. data, the Stewart Investors India Subcontinent Sustainability fund, which is based in the United Kingdom but manages its 442 million pounds (US$ 592 million) in client money from Singapore, returned 31.2% in the year through November. According to Morningstar classifications, this is better than any other UK fund using environmental, social, and governance investing techniques over the same period.

According to research released by Stewart Investors, which manages a total of US$ 25 billion, India has a lower carbon footprint than Europe and the United States and is on pace to grow investments in infrastructure and industry. It stated that this outlook involves significant investments in renewable energy and low-carbon technology.

According to Sashi Reddy, one of the fund's co-managers, India's economic climate implies that well-positioned companies will "profit disproportionately" as the country invests in a future that relies less on coal and other fossil fuels and more on renewable energy.

Tube Investments is the largest holding in the Stewart Investors fund. Murugappa Group has a metals company that builds motorcycles and is exploring the market for electric scooters. The fund, which has more than doubled in size in the previous year, also owns Aavas Financiers Ltd., a lender to small enterprises and consumers, and CG Power and Industrial Solutions Ltd., a power-generation designer acquired by Tube Investments last year.

Clean-energy initiatives are now receiving more funding from India's financial industry than coal-based projects. However, an ESG bet on India still has many unknowns. The country is still the world's second-largest coal producer, and its government has yet to figure out how to fund the shift to carbon-free energy.

This year, India's efforts to transition to a greener future grabbed headlines. The country announced ambitions to achieve net-zero carbon emissions by 2070 during the COP26 climate summit in Scotland. Despite being later than the United Nations' critical 2050 deadline, the plan is still in line with what scientists say is required to avoid catastrophic global warming.

The Stewart Investors fund is one of the few top-performing ESG vehicles not reliant on technology firms. According to Morningstar and corporate fact sheets, at least half of the UK's 20 top-returning sustainable funds managing more than 200 million pounds in 2021 had significant positions in one or more of the technology behemoths — Microsoft Corp., Amazon.com Inc., Apple Inc., or Google parent Alphabet Inc. On the other hand, Tesla Inc., Alphabet Inc., Apple Inc., Amazon Inc., and Nvidia Corp. were all significantly favoured by ESG funds in the United States.

The dominance of big tech in funds claiming to follow ESG strategies has sparked a lot of discussion. While Alphabet and Microsoft have been vocal about their low carbon footprint, other issues such as governance, labour conditions, and data privacy have made headlines, prompting some, including Stewart Investors, to doubt their ESG credentials.

The industry's ostensibly low carbon footprint guides fund managers who include IT stocks in their ESG strategies. Apple, Alphabet, Amazon, Microsoft, and Facebook Inc. helped the 1.6 billion-pound Schroders Sustainable Multi Factor Equity fund achieve a 21.5% return in the 12 months through November.

"A clear quantitative indication of the fund's sustainability is that its carbon footprint has been less than half of its benchmark since inception," says Ashley Lester, head of systematic investing at Schroders.

M&G Plc, whose Global Sustain Paris Aligned fund with around 14% of its assets allocated to Apple and Alphabet, is another U.K. asset manager that has done well by relying on tech stocks for its ESG strategy. Through November, it returned 20.3%.

"Our investments in these companies are subject to environmental, social, and governance (ESG) analysis and engagement on issues such as corporate governance, water management, and greenhouse gas emissions reduction," says the company's head of impact and sustainable investing, Ben Constable-Maxwell. "In addition to a specific climate engagement programme, each investment undergoes a deeper ESG examination and an assessment of alignment with the Paris climate goals." he stated.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.