As the global investment landscape evolves, Environmental, Social, and Governance (ESG) funds have emerged as top-performing and socially responsible investment choices. Not only do ESG funds align with investors’ ethical values, but they also offer competitive, and in some cases superior, returns compared to traditional funds.
In this article, we explore the top-performing ESG funds globally and in India, why they are gaining popularity, and how investors can benefit from this sustainable trend.
🌱 What Are ESG Funds?
ESG funds are investment vehicles that focus on companies meeting certain environmental, social, and governance criteria. They avoid companies involved in harmful industries (e.g., tobacco, coal) and instead invest in companies that practice sustainability, ethical labor, and strong corporate governance.
Key ESG Criteria:
| ESG Component | Examples of Factors Considered |
|---|---|
| Environmental | Carbon footprint, renewable energy use, waste management |
| Social | Labor practices, community impact, diversity & inclusion |
| Governance | Board diversity, transparency, executive pay |
📈 Why Are ESG Funds Gaining Popularity?
Several factors have driven the rise of ESG investing:
- Consumer and investor demand for sustainability
- Corporate accountability and regulatory requirements
- Data-driven transparency via ESG scores and ratings
- Strong historical returns, especially during volatile markets
Quick Stat:
According to Morningstar, global ESG fund assets crossed $3 trillion in 2024, a 15% increase year-over-year.
🔝 ESG Funds with Highest Returns Globally (2024–2025)
Here’s a look at some top-performing ESG funds (internationally) based on 1-year and 3-year annualized returns:
| Fund Name | 1-Year Return | 3-Year Return (Annualized) | Fund Category |
|---|---|---|---|
| iShares Global Clean Energy ETF (ICLN) | 18.2% | 12.5% | Clean Energy |
| Parnassus Core Equity Fund (PRBLX) | 16.7% | 10.8% | Large Cap ESG |
| SPDR S&P 500 ESG ETF (EFIV) | 15.3% | 11.9% | Broad ESG Index |
| Fidelity US Sustainability Index Fund (FITLX) | 14.8% | 10.3% | ESG Index |
| Calvert Equity Fund (CSIEX) | 17.5% | 11.1% | Sustainable Growth |
Data as of Q1 2025. Past performance does not guarantee future results.
🇮🇳 Top ESG Mutual Funds in India (2025)
The Indian mutual fund space is also experiencing a surge in ESG-focused investments. Here’s a table of India’s top ESG mutual funds based on recent returns and AUM (Assets Under Management):
| Fund Name | 1-Year Return | 3-Year Return | AUM (₹ Cr) | Fund House |
|---|---|---|---|---|
| SBI Magnum ESG Fund | 20.4% | 15.7% | ₹6,500 | SBI Mutual Fund |
| Axis ESG Equity Fund | 18.6% | 14.2% | ₹3,200 | Axis Mutual Fund |
| ICICI Prudential ESG Fund | 17.1% | 13.8% | ₹2,800 | ICICI Prudential |
| Quantum India ESG Equity Fund | 16.3% | 12.4% | ₹600 | Quantum Mutual Fund |
| Kotak ESG Opportunities Fund | 15.7% | 11.9% | ₹1,000 | Kotak Mutual Fund |
These funds typically invest in companies like Infosys, HDFC Bank, Tata Consultancy Services, and Wipro, which score highly on ESG metrics.
📊 ESG vs Traditional Funds: Performance Comparison
Many investors still question whether ESG investing compromises returns. In fact, studies and recent data suggest otherwise.
| Metric | ESG Funds | Traditional Equity Funds |
|---|---|---|
| Average 1-Year Return (India) | 17–20% | 14–16% |
| Average Risk (Volatility) | Moderate | Moderate-High |
| Crisis Resilience (e.g., COVID dip) | Stronger recovery | Slower recovery |
| Alignment with SDGs | High | Low–Moderate |
Conclusion: ESG funds often match or outperform traditional funds, especially during downturns due to their focus on quality, risk management, and governance.
🔍 How to Choose the Right ESG Fund
If you’re considering ESG investing, here are a few factors to consider before selecting a fund:
1. Fund Objective & Strategy
- Does the fund prioritize climate action, gender equality, or governance?
- Choose based on your ethical preferences and financial goals.
2. Past Performance
- Always evaluate 1-year, 3-year, and 5-year performance data.
- Check how it performed during market downturns.
3. Expense Ratio
- ESG funds can have slightly higher management fees.
- Choose funds with expense ratios below 2% where possible.
4. ESG Rating
- Use platforms like Morningstar, MSCI, or Sustainalytics for ESG scores.
5. Diversification
- Ensure the fund has a diversified portfolio across sectors and geographies.
💡 Benefits of Investing in ESG Funds
Investing in ESG mutual funds offers both financial and societal returns. Let’s explore some key advantages:
| Benefit | Description |
|---|---|
| Dual Returns | Grow wealth while promoting sustainability |
| Lower Risk | Focus on ethical and well-managed companies |
| Regulatory Support | More government backing for green investing |
| Long-Term Viability | ESG trends expected to grow with climate goals |
| Positive Impact | Invest in companies with real-world improvements |
❗ Risks & Considerations
Despite their popularity, ESG funds also come with certain limitations:
- Subjective Criteria: ESG ratings vary across providers.
- Sector Bias: Funds may avoid profitable sectors like oil or defense.
- Greenwashing: Some funds claim to be ESG but fall short in impact.
Tip: Always read the scheme information document (SID) and fund fact sheet to verify claims.
🛠️ Tools to Track ESG Funds
Here are some tools and platforms to help you compare and analyze ESG funds easily:
| Platform | Features |
|---|---|
| Morningstar India | ESG ratings, fund comparisons, risk scores |
| Groww / Zerodha Coin | ESG-specific filters in mutual fund section |
| ET Money | Return data, sustainability metrics |
| Value Research | Indian mutual fund rankings and ESG insights |
📚 Expert Insights
According to Larry Fink, CEO of BlackRock:
“Sustainable investing is the strongest foundation for client portfolios going forward.”
Financial advisors increasingly recommend ESG funds for long-term, goal-based investing, especially for retirement, child education, or ethical investing purposes.
🧭 Final Thoughts: Should You Invest in ESG Funds?
If you’re seeking high returns without compromising your values, ESG funds are a smart and sustainable choice. They offer a compelling blend of:
- Strong long-term performance
- Lower downside risk
- Social and environmental impact
As more investors look to align their portfolios with global priorities like climate change, diversity, and corporate accountability, ESG funds are not just a trend—they’re becoming the future of investing.
📝 Summary Table: Best ESG Funds by Category
| Region | Top ESG Fund | Returns (1Y) | Best For |
|---|---|---|---|
| India | SBI Magnum ESG | 20.4% | Long-term Indian investors |
| US | iShares Clean Energy ETF | 18.2% | Clean energy exposure |
| Global | Parnassus Core Equity | 16.7% | Large-cap, diversified ESG |
| Low-Cost | Fidelity FITLX | 14.8% | Passive ESG indexing |
📌 Frequently Asked Questions (FAQs)
1. Are ESG funds profitable?
Yes, many ESG funds have outperformed traditional funds in the last 5 years due to strong corporate governance and risk management.
2. Do ESG funds pay dividends?
Yes, some ESG funds offer dividend options. Check the scheme’s details for payout or reinvestment plans.
3. Can NRIs invest in ESG mutual funds in India?
Yes, many Indian ESG mutual funds accept NRI investments, subject to FATCA and KYC compliance.
✅ Conclusion
ESG investing is not just ethical—it’s also financially rewarding. Whether you’re a seasoned investor or a beginner, allocating a portion of your portfolio to high-performing ESG funds can deliver value-driven growth for you and the planet.
🌍 Invest smart. Invest sustainable.