ESG Investing’s Second Coming

By Jitendra Sriram, Senior Fund Manager Equity, Baroda BNP Paribas MF

President Trump may have closed the door to ESG in the USA, but for Europe and other parts of Asia and Africa, bearing the brunt of the forces of climate change, ignoring ESG is not an option. This is why while US companies may be revisiting their ESG goals, the rest of the world isn’t exactly cycling back to business as usual.

But what is ESG?

ESG investing is an approach to investing that explicitly incorporates environmental, social, and governance (ESG) factors in investment decisions, with the long-term return of an investment portfolio in mind. Incorporating ESG bakes into the traditional financial rigour, the material non-financial investment risks, which could potentially derail an investment in the long run by way of environmental litigations, abuse of labour laws or governance mishaps.

ESG-integrated investment funds primarily focus on how ESG factors would impact a company’s performance. These use ESG ratings to mitigate non-financial risks while side-stepping exclusions.

Aided by regulatory support

Regulatory support in India has been of great help, with SEBI mandating the top 1000 companies by market cap to annually report on ESG metrics.

New Indian governmental regulations have added the icing to the cake - India's Carbon Credit Trading Scheme, National Solar Mission and Extended Producer Responsibility regulations, for example. It’s not just India; in the past 10 years, global spending on clean energy, too, has been higher than investments in fossil fuels.

Do Indian markets appreciate ESG?

As of December 2025, the Nifty100 ESG index has given better returns than Nifty 100 and Nifty 500 on a one-year basis, overperforming by 1.27 percentage points and 3.75 percentage points, respectively. For similar PE levels, the Nifty 100 ESG index has delivered stronger PAT growth.

How does it work?

Traditional thematic investment offers vertical exposure to a theme. ESG is more horizontal – it puts the spotlight on the best-run companies on ESG metrices across sectors. It preserves diversification while zeroing in on companies which are better placed, better run and in harmony with its environment within the space.

Why invest in the ESG theme?

In a rapidly evolving investment landscape, ESG funds offer an opportunity to invest in companies that are not only financially robust but also better prepared for future disruptions. With regulatory momentum accelerating and investments in energy transition growing, the shift toward sustainable value creation is unmistakable. Moreover, the overperformance of the ESG index underlines that responsible investing and competitive returns increasingly go hand in hand. For investors seeking resilient, well‑governed, future‑proof portfolios, ESG funds are no longer just an ethical choice—they are a strategic imperative.

Disclaimers:

The views and investment tips expressed by experts are their own and are meant for informational purposes only and should not be construed as investment advice. Investors should check with their financial advisors before taking any investment decisions.

The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but Baroda BNP Paribas Asset Management India Private Limited (BBNPP), makes no representation that it is accurate or complete. BBNPP has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as ‘will’, ‘would’, etc., and similar expressions or variations of such expressions may constitute forward-looking statements.

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