Introduction
As it is clear from the name, this small case comprises the stocks of the companies that consider Environmental, Social and Governance factors, promising long term sustainable returns to its investors. Here, we put in companies that strive to make the world a better place through their corporate governance and CSR (Corporate Social Responsibility) activities. Currently, 23 ESG focused funds are available in India, one of which our company offers.
Investment Drivers
Here, the investment is driven by “How companies make money rather than how much they make”. Companies that acknowledge and manage ESG risks better than their peers have a higher chance of being a part of this fund. Prudent capital expenditure programs, conservative balance sheet, cash flow generation coupled with consideration of factors like climate change, diversity, carbon emissions are the signs we look up to. With the objective of wealth creation keeping in mind, we take up companies that offer a rich source of alpha for years to come, deliver stable returns at lower risk and have a substantial social impact.
Investment Philosophy
The focus of this fund is to invest in high quality small / midcap funds that not only create long term sustainable returns but also promote a more equitable and environmentally-friendly world for all. In this strategy, we endeavor to invest in companies that help
- Save our environment
- Treat various stakeholders fairly
- Give back to the community
while fulfilling our basic requirement of delivering consistent, top-notch financial performance backed by honest management. Such companies acknowledge and manage ESG risks better than their peers, including climate change, employee health and safety and board independence. They also don’t get into egregious negative controversies that have a meaningful long term impact on the firm’s value. Corporate governance, material ESG issues, and distinctive issues (black swans) form the three central building blocks of our ESG research and ratings. We follow a two-dimensional materiality framework that measures a company’s exposure to industry-specific material risks and how well a company is managing those risks.
Who should invest in this smallcase?
This portfolio is ideal for investors looking for an investment option that considers sustainable business practices while also maintaining a high growth rate for a time horizon of five years or more. With the high return comes high risk. One can expect high volatility due to small and mid-cap funds allocation. Investors who aim for sustainable returns should go for this smallcase.