1. What Is ESG Investing and Why It Matters Today
ESG investing looks at how a company treats the environment, its people and how it is run. These three parts sit at the centre of every ESG fund. The idea is simple. A company that handles its waste, treats workers well and is well managed often stands on stronger ground over the long run.
In India, this matters more each year. People are paying attention to air quality, water use and how firms handle supply chains. SEBI has pushed companies to share more information through its Business Responsibility and Sustainability Report. You can read about that directly on SEBI’s site at https://www.sebi.gov.in. This has made it easier to see how firms behave beyond quarterly results.
ESG funds differ from traditional funds because the filter is not only about profit or growth. The fund manager studies how a company scores on environmental impact, social practices and governance checks. This helps remove businesses that may earn well today but face long-term legal or reputational trouble.
Many new investors in India choose ESG funds because they want their money to support companies that try to do better. Others like the idea of avoiding firms that may carry hidden risks. Both groups want clarity, and ESG gives them another tool to judge where their money goes.
For people who are new to this space, the core idea stays simple. ESG does not replace financial analysis. It sits beside it and adds another layer that helps investors understand if a company behaves in a stable and transparent manner.
2. How ESG Scoring Works in India
Most people hear about ESG scores but rarely know where they come from. In India, these scores are built by rating agencies that study how a company behaves across many small data points. The main names here include MSCI, Sustainalytics, Refinitiv, CRISIL and a few local research firms. These agencies collect reports, inspect company disclosures and review past behaviour before giving a score.
The score usually covers three parts. The first part looks at how the company handles energy, emissions, waste and water. The second part reviews how it treats workers and communities, and whether any major complaints have been raised. The third part checks how the company is run, how the board functions and whether there have been any compliance issues. Each agency uses its own method, which is why the same company can have different scores from different sources.
Indian companies follow SEBI’s Business Responsibility and Sustainability Report, which you can find on https://www.sebi.gov.in. This report has made scoring more consistent because all listed firms now share similar information. Even then, beginners often assume a higher ESG score means the company is perfect. That is not how the system works. A score only shows how the company performs today based on available data. It does not predict the future and it does not remove investment risk.
Another mistake people make is comparing ESG scores from two different agencies as if they use the same method. They do not. It works better when you compare scores from the same agency over time, because you can see if the company is improving or slipping.
For investors in India, ESG scoring acts like an early warning system. It can highlight gaps in behaviour that may lead to legal fines, weak supply chains or loss of public trust. It also helps find firms that try to fix problems instead of hiding them. This gives investors a clearer view of how the company stands beyond its balance sheet.
3. Are ESG Mutual Funds a Good Choice for Indian Investors?
ESG funds work for people who want growth but also care about how companies behave. They sit well in a long-term plan because most of the benefits show up slowly. Strong governance, safer supply chains and cleaner operations often protect a company from sudden shocks. This can steady returns over time, even if the short term feels uneven.
There are a few benefits that stand out for Indian investors. Many ESG funds avoid companies with repeated compliance troubles. They also hold firms that share more details about their practices, which makes it easier to judge them. A rising number of Indian companies now report under SEBI’s sustainability rules, and this helps fund managers make cleaner decisions.
ESG funds also carry their own risks. India does not have decades of track record for these funds. Most launched in the past few years, so the performance history is short. Many funds lean heavily on a few sectors like technology or financials because those companies often score better on governance. This can lead to concentration during certain market cycles. ESG ratings also vary across agencies, so the same company can look strong under one system and average under another.
These funds fit people who already invest in equities and can stay invested for at least five to seven years. They do not work well for anyone expecting quick results. A moderate-risk investor may find them useful as one part of a portfolio. Someone with very high risk may find them too restrictive, while someone very conservative may prefer balanced or debt funds instead.
4. Top ESG Mutual Funds in India for 2025. Complete Comparison
Before looking at each fund in detail, it helps to see everything in one place. The table below keeps it simple. It compares common factors people care about. These numbers are sample placeholders meant to guide structure, since each fund updates its data often. When you write the final version for your blog, replace them with the latest details from sources like AMFI at https://www.amfiindia.com and the fund houses.
Fund name | ESG score (agency based) | 3-year return | Expense ratio | Fund size | Risk level | Ideal investor
SBI ESG Fund | Medium to high | 15 per cent | 1.2 per cent | Large | Moderately high | Long-term SIP investor who wants steady exposure
Axis ESG Equity Fund | Medium | 13 per cent | 1.6 per cent | Medium | High | Investor comfortable with growth-focused holdings
ICICI Prudential ESG Fund | Medium | 14 per cent | 1.5 per cent | Medium | Moderately high | Investor who prefers a mix of sectors
Kotak ESG Opportunities Fund | Medium | 12 per cent | 1.3 per cent | Small to medium | Moderately high | Beginner who wants lighter exposure
Quantum India ESG Equity Fund | High | 11 per cent | 0.9 per cent | Small | Moderate | Cautious investor who prefers a rules-based style
The scores listed here reflect an average trend across major rating agencies. Each provider uses its own method, so fund houses may show slightly different figures on their websites.
This comparison works as a quick snapshot. It shows that ESG funds do not behave in the same way. Some lean towards growth, while others hold a mix of stable sectors. Fund size also varies a lot because ESG investing in India is still young. A beginner may choose a fund with a lower expense ratio, while a long-term investor may focus more on consistency rather than recent returns.
5. Detailed Review of Each ESG Fund
A closer look helps people understand how these funds behave beyond the headline numbers. The points below give a clear view of each fund’s style, the sectors it leans on and the kind of investor who may find it useful. The figures are placeholders so you can update them with the latest data from AMFI or the fund houses.
SBI ESG Fund
This fund follows a blended style. It picks companies with steady earnings and reasonable valuations. It tends to hold financials, information technology and consumer names because these companies score better on governance and disclosure. The fund’s past pattern shows periods of steady growth during stable markets and mild swings during volatile phases. The main risk comes from its tilt towards large established sectors, which can drag returns when those areas face pressure. It suits long-term investors who want predictability and do not want frequent portfolio churn.
Axis ESG Equity Fund
Axis follows a growth-leaning approach. It prefers companies with clean balance sheets and higher earnings growth prospects. The portfolio often includes technology, healthcare and select consumer stocks. Returns can feel uneven because growth segments react faster to global trends. The fund may carry higher short-term swings but rewards patience when growth cycles turn strong. It works for investors who can handle sharper ups and downs and want a more aggressive ESG option.
ICICI Prudential ESG Fund
ICICI aims for balance. It spreads its allocation across financials, industrials, technology and select manufacturing names. Past performance shows smoother phases compared to pure growth funds, but still enough movement to keep long-term returns competitive. The risk lies in its exposure to sectors that depend on economic cycles. This fund suits investors who want a broader spread and do not want to lean too heavily on one type of company.
Kotak ESG Opportunities Fund
Kotak uses a flexible style. It mixes stable companies with a few selective growth stories. The fund often includes financials, energy transition-related businesses and some consumer stocks. Returns have been moderate because the fund stays cautious during uncertain periods. Sector concentration can show up at times, which may affect performance when those sectors slow down. This fund fits beginners who want ESG exposure without a strong tilt towards any single style.
Quantum India ESG Equity Fund
Quantum follows a rules-based method. It screens companies using a strict checklist that gives more weight to governance and transparency. The portfolio usually holds fewer stocks compared to larger funds, which leads to cleaner allocation but also higher impact when one stock moves. Past returns have been stable rather than fast-rising. The risk comes from its smaller fund size and focused investing. This fund fits cautious investors who want a tight process and are fine with slower but steadier growth.
6. How to Select the Right ESG Fund for Your Goals
Picking an ESG fund becomes easier when you follow a simple structure. People often look at past returns first, but that rarely tells the full story. ESG funds behave differently because each one uses its own method and its own mix of sectors. A clear checklist keeps the decision grounded.
Checklist to guide your choice
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Look at the fund’s investing style and see if it matches your comfort with market swings.
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Check the expense ratio because it can affect long-term results.
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Review sector exposure to make sure the fund is not leaning too heavily on one area.
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Read the fund’s ESG process to see how it screens companies.
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Study the minimum three-year performance pattern rather than a single year.
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Check fund size to understand liquidity and stability.
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Compare ESG ratings from the same agency, not across different agencies.
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Make sure the fund fits your time horizon.
These points help people avoid guessing. They also reduce the urge to chase a fund simply because it performed well last year.
Questions to ask before investing
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Does this fund match how long I plan to stay invested?
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Do I understand how the fund manager picks companies?
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Am I comfortable with the sectors this fund holds?
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How will this fund fit with my existing holdings?
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Am I adding ESG for diversification or values-based investing?
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Can I continue the investment even if the market turns rough?
Answering these questions gives a clearer picture of whether the fund fits your life rather than just your portfolio.
Examples for different types of investors
Short-term investor
Anyone with a short two- to three-year horizon should avoid pure equity ESG funds. They move too much during market swings. A short-term investor is better off using hybrid or debt-based options instead of ESG equity. ESG equity funds need time.
Moderate investor
A moderate investor with a five-year view can pick a balanced ESG fund such as ICICI or Kotak because they spread their holdings across several sectors. This helps avoid sudden drops that come from one concentrated theme.
Long-term investor
Anyone with a seven- to ten-year view can use a growth-leaning ESG fund like Axis or a diversified one like SBI. A long horizon gives the fund time to recover from cycles and benefit from improvements in governance and sustainability practices.
7. Common Challenges in ESG Investing in India
ESG sounds simple on the surface but the ground reality in India still carries gaps. These gaps do not make ESG unusable. They only show where investors need more patience and better expectations.
One major concern is greenwashing. Some companies highlight small sustainability steps while ignoring larger issues in their operations. This can make scores look better than the actual practices. SEBI’s new disclosure rules aim to reduce this, but it will take time before reporting becomes fully consistent.
Another challenge is the short track record. Most ESG funds in India launched in the past few years. This makes it hard to judge how they behave across long market cycles. People often look at global ESG data, but Indian markets move differently. Local companies face their own regulatory and supply chain pressures, so global patterns do not always match Indian outcomes.
There is also the issue of sector concentration. Many Indian companies with strong governance sit in financials and technology. This pushes ESG funds towards the same pockets of the market. When these sectors slow down, returns may feel weaker even if the fund is following its stated process.
Rating inconsistencies add one more layer of confusion. A company may receive a favourable score from one agency and an average score from another. Each agency uses its own method and weightings, so comparing across them often leads to mixed signals. Investors need to stick to one source when reviewing changes over time.
8. Future of ESG Investing in India
ESG in India is moving from a niche idea to a structured part of the market. This shift did not happen overnight. It came from steady pressure on companies to share more information and from people who want cleaner and safer business practices.
SEBI has played a large role through its Business Responsibility and Sustainability Report. You can read more about it on https://www.sebi.gov.in. Larger companies already follow these rules, and more firms will come under the same framework in the coming years. This means ESG data will improve, which gives fund managers better room to judge companies.
Corporate responsibility is rising as well. Many firms now publish sustainability reports, reduce waste, focus on energy use and tighten their supply chain checks. These steps are not always perfect, but the shift is clear. Companies know investors expect this level of transparency.
The government’s focus on renewable energy, cleaner manufacturing and electric mobility also supports ESG growth. These themes push capital towards firms that adapt early. It encourages companies to upgrade their processes instead of waiting for later regulations.
Over the next decade, ESG investing in India may grow because reporting will become stronger and markets will reward companies that handle risks well. More data will help people see which companies improve over time and which ones fall behind. This makes ESG a more practical tool rather than a trend.
9. Step-by-Step Guide. How to Start Investing in ESG Funds
Starting an ESG investment feels simple once you break it into small steps. The process works like any other equity fund. The difference sits in how you pick the fund and how long you plan to stay invested.
Step 1. Choose a broker or app you trust
Most people use platforms like Zerodha, Groww, Paytm Money or the fund house website itself. Look for a clean interface, clear statements and simple SIP setup. AMFI at https://www.amfiindia.com lists all registered fund houses if you want to verify details.
Step 2. Decide how much you want to invest
Pick an amount you can continue each month without strain. ESG funds show their best results when the investment runs for several years. A steady SIP works better than large one-time amounts for most people.
Step 3. Pick between SIP and lump sum
A SIP spreads your cost over time. This is helpful because ESG funds, like all equity funds, move with the market. A lump sum works only when you already have a long horizon and are ready for swings. Most beginners feel more comfortable starting with a SIP.
Step 4. Select the ESG fund that fits your goal
Use the earlier checklist to match the fund with your time horizon. Avoid picking a fund based only on recent performance. Focus on the fund’s process, sector exposure, expense ratio and how it behaves across market cycles.
Step 5. Complete KYC and start investing
Most brokers allow online KYC. Once it is done, you can set a monthly SIP or invest a one-time amount. Keep it simple. Do not switch funds every few months unless something about the fund changes in a meaningful way.
Step 6. Review your investment once or twice a year
You do not need daily tracking. A half-yearly check is enough. Look at changes in the portfolio, sector allocation, fund size and any updates in ESG scoring. If the fund stays true to its method and matches your goals, continue the plan.
10. FAQs on ESG Mutual Funds
Are ESG funds safe?
ESG funds carry the same market risk as any equity fund. The ESG filter adds more information about how a company behaves, but it does not remove market swings. They work better for people who can stay invested for several years.
What is the minimum investment?
Most ESG funds allow small SIP amounts, often starting near five hundred rupees. The exact number depends on the fund house. You can confirm this on AMFI at https://www.amfiindia.com or through your broker.
How are ESG funds taxed?
ESG equity funds follow the same tax rules as equity mutual funds. If you hold the fund for less than one year, gains fall under short-term capital gains tax. If you hold it longer, gains fall under long-term capital gains tax with the standard limits and rates. These rules can change, so it helps to check the latest details on the Income Tax Department site at https://www.incometax.gov.in.
Should I pick global ESG funds or Indian ESG funds?
Global ESG funds give access to international companies that follow mature reporting standards. They also carry currency movement and international market risk. Indian ESG funds focus on local firms that follow SEBI’s sustainability rules. People who want stability usually start with Indian ESG funds and add global exposure later if needed.
Can beginners invest in ESG funds?
Yes, but only if they understand that ESG funds behave like any other equity fund. They rise and fall with the market. A beginner may find comfort in starting with a balanced ESG fund rather than one that leans too much towards fast growth.
Do ESG ratings stay the same over time?
No. Scores can change when companies improve their practices or face new issues. This is why a yearly review helps. Tracking changes from the same rating agency gives a clearer picture.
11. Final Recommendations
A clean way to close your ESG plan is to match each type of investor with a fund that fits their behaviour. These suggestions stay simple and avoid chasing the latest trend. Update the exact numbers later, but the structure works well for most people starting out.
Best pick for beginners
A beginner often needs steadiness more than speed. A balanced ESG option such as ICICI or Kotak works well because the portfolio spreads across several sectors. This reduces sharp swings and makes the investment easier to hold through early market cycles.
Best pick for long-term SIP
A long-term SIP needs a fund that stays consistent with its method. SBI ESG Fund fits this style because it blends growth with stability and usually avoids extreme sector bets. A steady SIP through market phases builds cost discipline over the years.
Fund to avoid if risk tolerance is low
People who prefer very low risk should avoid pure growth-leaning ESG funds such as Axis. These funds can move sharply when markets react to global trends. They work only for those who can handle swings and stay invested for a long time.