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The Rise of ESG Investing in Retirement Planning

ESG in retirement plans can pave the way for a sustainable future that balances financial returns with social and environment-friendly practices.

  • 2,483 Views | Updated on: Jun 13, 2024

In recent years, Environmental, Social, and Governance (ESG) investing has gained popularity among investors worldwide, including in India. As the world is going towards sustainable development, people have recognized the need to align their financial goals with sustainability.

    Key Takeaways

  • ESG investing focuses on a company’s environmental, social, and governance performance along with traditional financial metrics.
  • Companies gain a competitive advantage by investing in sustainable practices.
  • For long-term investment, you can consider ESG funds along with traditional retirement options.
  • At present, there are above 10 mutual funds schemes having ESG themes in India.
  • By the time you retire, ESG can provide you with a valuable return because of the growth in its demand.

ESG investing is a great tool for creating a positive impact on the environment along with financial gains. Let us discuss ESG in investing through this blog by highlighting its key drivers and the potential it holds for long-term investing, including retirement.

Embracing ESG Funds

ESG investing focuses on a company’s environmental, social, and governance performance along with traditional financial metrics. By assessing the company’s sustainable practices, its impact on society, and the effectiveness of corporate governance, investor aims to generate long-term value while supporting healthy practices. Here are the following key drivers of ESG investing in India:

Regulatory Support

The Securities and Exchange Board of India (SEBI) has played a vital role in the promotion of ESG investing. The institution introduced guidelines for the top 1,000 listed companies to disclose their ESG-related activities. This mandate required companies to improve ESG practices and enhance transparency.

Investor Demand

There has been a surge in demand for ESG funds because of the global awareness of climate change, social issues, and corporate governance. Hence, institutional investors, retail investors, and asset management companies are gradually recognizing the potential of ESG in investing.

Business Opportunities

Companies gain a competitive advantage by investing in sustainable practices. This not only improves their operational efficiency but also attracts capital from responsible investors. Thus, ESG opens the door to better business opportunities.

ESG in Retirement

Retirement planning is a long-term investing process. It involves saving and investing a part of your current income towards post-retirement life. Hence, you plan for retirement as soon as you start earning to reap the maximum benefits.

Although there are various traditional retirement plans and government schemes to invest in, having a diversified investment portfolio is essential to mitigate the risk. For long-term investment, you can also consider investment in ESG funds, along with a traditional retirement plan.

At present, there are above 10 mutual funds schemes having ESG themes in India. ESG funds are paving their way in the Indian mutual fund industry, and Asset Management Companies have been initiating and launching equity schemes in the ESG space. In addition to this, SEBI has permitted mutual funds to introduce 5 new categories under ESG schemes.

By investing in ESG, you not only get the trust and authenticity of the companies you invest in but also contribute and promote sustainable practices. Also, by the time you retire, ESG can provide you with a valuable return because of the growth in its demand.

Trends in ESG Investing

ESG investments are not only popular in the Western world but have experienced traction in India as well. Here are the recent trends in ESG investing in India:

Integration of ESG Factors

Indian investors are gradually integrating ESG factors into their investment planning. From equities and bonds to venture capital, more and more investors are seeking opportunities that align with sustainability goals.

ESG Data and Rating

Data is the new gold in today’s world. Therefore, with the increasing demand for ESG investing, more emphasis is given to reliable ESG data and ratings. Indian companies are continuously working on enhancing their ESG disclosures. While rating agencies are innovating and developing comprehensive frameworks to evaluate companies based on ESG performance.

Green Bonds

Green bonds are popular and environment-friendly options. It has witnessed a sharp rise in demand during the past years in funding environmentally friendly projects. Similarly, sustainability-linked instruments under which the interest rate is linked to the company’s ESG performance are gaining popularity.

Wrapping Up

ESG has brought in new investment opportunities for people with a brighter vision. It has promoted a culture of sustainable development along with corporate governance among organizations. Moreover, clear and strict guidelines by SEBI have enhanced the confidence of investors, which encouraged people to include ESG in retirement planning.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors