Kotak Mahindra Mutual Fund Launches Kotak ESG Opportunities Fund
There is a slew of EGG funds that are being launched by the Indian mutual fund industry recently. From the start of the year, almost four fund houses have launched ESG dedicated fund. Kotak Mahindra Asset Management Company Limited (KMAMC) is the latest one to join the race. KMAMC has today announced the launch of ‘Kotak ESG Opportunities Fund’, which will focus on Environmental, Social and Governance (ESG) factors and the Principles for Responsible Investing (PRI). The new fund offering (NFO) opens for subscription on November 20, 2020, and closes on December 4, 2020. KMAMC is the first asset management company to sign the United Nation's Principles for Responsible Investment (UNPRI).
Objective: The scheme seeks to generate capital appreciation by investing in a diversified portfolio of companies that follow Environmental, Social and Governance (ESG) parameters.
Strategy: Fund will invest in companies based on financial and non-financial factors such as Environmental, Social and Governance as a part of its research process to identify material risks and growth opportunities. Based on the ESG criterion, the fund manager would identify a list of companies. The final selection of stocks & sectors would be driven primarily by the growth prospects and valuations of the businesses over a medium to long term as per the discretion of the fund manager within this universe. The fund will invest across market capitalisation and will adopt a combination of top-down and bottom-up approach for stock selection.
In order to assess the ESG performance of an investee company, Kotak ESG Opportunities Fund will broadly look at the policies, practices and disclosures of each ESG pillar. For environmental performance, it will be energy efficiency measures, waste management including e-waste management, carbon and greenhouse gas (GHG) emission footprint, and renewable energy use; for social performance, it will be employee working conditions, welfare and training, health and safety standards; for assessing governance performance, in addition to corporate governance practices and disclosures as required under the Companies Act, 2013 and SEBI’s Listing Obligations and Disclosure Requirements (LODR) 2015, that is a whistle-blower and anti-corruption policy, no child labour policy, anti-sexual harassment policy, diversity and inclusivity policies and practices, etc.
Fund Manager: This scheme will be managed by Mr Harsha Upadhyaya, President and CIO – Equity at Kotak Mahindra Asset Management Company. The performance of the scheme will be benchmarked against Nifty 100 ESG TRI.
Our View: The inflows of ESG ETFs have surged to USD 22 billion globally so far in 2020, which is more than three times that was achieved in the year 2019 in total. Even in India, most of the ESG funds got launched in 2020 itself. Hence, it is quite early to pass a judgement on their performance. Nonetheless, in this small period of time, they have largely underperformed the large-cap dedicated funds.