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All You Need to Know About Sustainable Investments

By Chanel Rick - Nov 2,2022
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3 Alternative Investment Options in India

What if your investments had multi-faceted outcomes that accomplish more than just your financial goals? In a world that’s troubled with failing economies, staggering crises and degrading environments, your wise investment choices can make a difference! Certain financial practices like sustainable investing allow you to partake in ecologically-conscious activities. 

Sustainable investments can be lucrative for those who desire high returns. It’s a great way to align your economic and ecological goals without compromising on the gains. Moreover, it’s a practice that promotes others to invest in avenues that benefit the environment. 

So, before you rush into the first sustainable investment scheme, read on to learn more about sustainable investments in India and their benefits. If you wish to pursue them, we have some factors for potential investors to consider while investing in them.

Understanding Sustainable Investments in India  

Simply put, these investments allow you to directly invest your capital into companies that tackle environmental concerns and climate change. It addresses these problems, but they also promote corporate responsibility. So, they help investors reap fruitful gains and an even more abundant future with their sustainable model.

Sustainable investments follow three pillars – planet and people. It’s also referred to as economic, environmental and social.

Adopting a sustainable approach is the need of the hour as the rate of ecological collapse worsens. Investments in sustainability account for nearly 36% of assets under management (AuM) globally. The Indian sustainable investment space only consists of 10-15% of this figure – it’s made up of a mix of private equity and venture capital firms.

In contrast, one-third of the global AuM is in the United States. To ensure Indian firms match the pace of their western counterparts, they are encouraged to invest in things that benefit people and the planet. As per reports by Benori Knowledge, sustainable investments by Indian private equity and venture capital firms may to grow to $125 billion in 2026. Its estimated to be at a 46% growth, as per the 5-year CAGR.

The Positive Influence of Sustainable Investing  

Back in 2020, SRI and ESG investments recorded inflows of $168.74 billion, as per an EPFR report. It had been $63.34 billion in 2019. A survey revealed that at least 85% of retail investors are more likely to opt for sustainable investing. With rising awareness of the ecological crisis, people must align their interests with such pressing matters.

While investors were concerned about inferior returns, data suggest otherwise. Sustainable returns can generate returns that are at par or, at times, superior to traditional investments. In 2020, the Nifty 100 ESG Index outperformed the Nifty 50 and delivered superior 5-year returns. These ESG ratings significantly impact a company’s performance, help mitigate financial risk by adopting sustainable practices.

As per a report by Morningstar, these investments have a comparatively lower risk than most traditional investments. Financial experts state that ESG ratings could potentially influence private equity companies. Though the expense ratio is considered a limiting factor, it’s subject to change as demand for ESG funds normalises these variables.

Factors to Consider before Investing

Millennials prefer modes of sustainable investing, since they’re interested in aligning their investment goals with personal values. With millennials likely to inherit substantial wealth, sustainable investments will continue to grow in demand. Fund managers are increasing the allocated resources towards developing products to capture this segment of investors. 

The growing awareness of global warming has necessitated the need for pro-environmental initiatives. Sustainable investing as a trend among companies has positively impacted the environment by lowering emissions. It has benefited companies that work with sustainable and clean energy sources.

That said, investments in industries like coal mining only contribute to further negative environmental impact due to the nature of their business practices.

The present scenario of sustainable investments in India suffers from a lack of quality data, a traditional mindset, limited sustainable funds, etc. A growing demand for supply and more environmentally-conscious investors entering the market, it will soon change for the better.

However, you can begin your journey of sustainable investing today by visiting Bajaj Markets for ecologically-sensitive investment schemes with high returns! 

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