ESG investing which started with the advent of faith-based funds such as Sharia and Catholic funds has now become a dominant force in the way people invest their money, according to Priyanka Dhingra, a senior ESG analyst at SBI Mutual Funds.

“The new-age investors are cautious of where their money is going. They don’t want to invest in companies doing harm to the environment. That creates a big opportunity for ESG-oriented funds,” said Dhingra while speaking to the students of ACJ-Bloomberg Business and Financial Journalism programme.

She also said that despite investors wanting to side with ESG-oriented funds, they are apprehensive of underperformance. However, Dhingra said data shows companies that rank higher on ESG ratings have given better returns than companies with lower ratings.

“We (SBI Mutual Funds) compared the stock prices of ESG leaders and laggards, ESG leaders outperformed the laggards,” said Priyanka Dhingra.

Apart from the advantages of ESG investing, Dhingra also elaborated on some of the challenges ESG investing faces. She said there is no uniformity in how ESG metrics are rated across companies. “This has made ESG investing a more subjective approach rather than rule-based,” said Dhingra

“People criticize saying electric vehicle companies are still using coal to generate electricity,” she said referring to the irony of ESG investing where EV companies get high ESG ratings but still use polluting coals to generate electricity. However, Dhingra said that since EVs use rechargeable lithium-ion batteries, they are still better for the environment.