Investing in indices and funds with ESG focus can pay off

While billionaire investor Warren Buffet believes that companies should prioritise shareholder returns over making environmental, social and governance (ESG) investments, there is an emerging possibility that shareholder returns can be better in the long term for companies that are high on compliance with ESG norms.

The National Stock Exchange’s Nifty 100 ESG Index and Nifty 100 Enhanced ESG Index have outperformed the benchmark Nifty 50 Index in seven of the past eight calendar years. In contrast, the S&P BSE 100 ESG Index, with a recent shorter historical data of past two years, has underperformed the benchmark Sensex. This makes a case for long-term investment in companies with high ESG scores.

Incidentally, the ESG-themed mutual funds launched in the past couple of years have outperformed their benchmark indices. Both SBI Magnum Equity ESG Fund and Quantum India ESG Equity Fund have outperformed the Nifty 100 ESG Index in the past one year and six months, respectively.


The Nifty 100 ESG Index, with a base date of April 1, 2011, is designed to reflect the performance of companies within Nifty 100 based on ESG score. To form part of the index, the stocks should be part of the Nifty 100 index and have an ESG score. Companies engaged in the business of tobacco, alcohol, controversial weapons and gambling operations are excluded.

Currently, there are 88 members of the index with HDFC Bank, Reliance Industries, HDFC, Infosys, TCS, Axis Bank, L&T, Kotak Mahindra Bank, ICICI Bank and HUL being the top constituents by weight.

In case of the Nifty 100 enhanced ESG index, the companies should have normalized ESG score of at least 50% to be included in this index.

Both these indices have outperformed the Nifty 50 index since their base date.

They have also outperformed the benchmark index in each of the calendar years from 2012 to 2018. The ESG indices marginally underperformed the benchmark index in the last year.

On the other hand, the S&P BSE 100 ESG Index, comprising of 66 stocks with a launch date of October 2017, has underperformed the Sensex in each of the past two calendar years. The BSE ESG Index is designed to measure securities that meet sustainability investing criteria while maintaining a risk and performance profile like the S&P BSE 100.