Investing

ESG Investing, explained without the jargon

ESG investing stands for Environmental, Social, and Governance investing, and it’s about more than just making money.

Team Dhan

08 Jul 2025 — 4 min read

More and more investors around the world are turning to ESG investing - that is, putting their money into companies that care about the environment, social responsibility, and good governance. In India, interest in ESG funds is picking up too, even though the journey has had its ups and downs. So, what exactly is ESG investing? Why are so many people talking about it? Let’s break down what it means, why it matters, the types of ESG investments out there, and the benefits you can expect.

What is ESG Investing?

ESG investing stands for Environmental, Social, and Governance investing, and it’s about more than just making money. It’s a way of choosing companies to invest in based on how responsibly they operate, not just how profitable they are.

So, what does that really mean?

In simple terms, ESG investing is putting your money into companies that care about the world — not just their bottom line.

Environmental: Does the company take care of the planet? Think carbon emissions, waste management, and how they use water or energy.
Social: How does the company treat people — its employees, customers, and the communities it works in?
Governance: Is the company run ethically? Are its leaders transparent, fair, and accountable?

It’s about backing businesses that do good while doing well.

Why invest in ESG companies?

For starters, it helps manage risk better. Companies that follow ESG principles are usually more careful about avoiding legal trouble, bad press, or internal issues - which makes them more stable in the long run.

Second, they often deliver stronger long-term returns. Sustainable businesses tend to perform better over time because they’re built to last, not just to profit quickly.

There’s also the feel-good factor. Your investments aren’t just growing, they’re supporting cleaner environments, fair treatment of people, and more ethical business practices.

And lastly, there’s a shift in mindset. With climate change and social issues in focus, people today are more mindful about where their money goes, and ESG investing fits right into that.

The types

There are various strategies for ESG-based investing, depending on your values and goals.

Type	Description
Negative Screening	This involves avoiding companies in sectors like tobacco, gambling, or fossil fuels
Positive Screening	This is where consideration is made for firms that have strong ESG scores
Thematic Investing	This is the focus on specific themes like renewable energy or gender equality
ESG Integration	This involves including ESG factors in traditional financial analysis
Impact Investing	This involves making investments to generate both measurable social impact and financial return

The difference: ESG vs Impact Investing

The following are the major differences between ESG investing and impact investing, to avoid confusion while making investment decisions.

Difference	ESG Investing	Impact Investing
Focus	The focus on risk and return is based on ESG considerations	The focus is based on measurable social or environmental change
Objective	Its objective is to have a financial gain while staying responsible	The objective is mainly based on social/environmental change first, then the profit second
Measurement	The measurements are based on ESG scores and compliance	The measurements are based on the impact metrics and outcome tracking

ESG Investing in India

India is quickly catching up when it comes to ESG investing. With SEBI introducing ESG disclosure norms and climate awareness on the rise, both retail and institutional investors are showing growing interest in this space.

If you’re looking to get started, there are a few ESG-focused mutual funds you can explore - like SBI Magnum ESG Fund, Axis ESG Equity Fund, and Kotak ESG Opportunities Fund.

Some well-known ESG-friendly companies in India include Infosys, TCS, Wipro, and Tata Motors - all of which are making efforts in sustainability, social responsibility, and ethical governance.

The benefit

Investing with an ESG lens isn’t just good for the planet — it’s good for your portfolio too. Here’s why:

It can help reduce volatility, so your investments aren’t swinging wildly with every market move.
ESG investing focuses on long-term growth, helping you build wealth steadily over time.
It also lets you invest in line with your personal values, supporting companies that care about people, the planet, and doing the right thing.
You get early exposure to sustainable sectors like green energy and clean tech, areas that are only going to grow.
And finally, companies that follow ESG principles often build a stronger, more trusted brand, which can lead to better performance.

The myths

A lot of investors are still on the fence about ESG — mostly because of a few common myths. So let’s clear the air:

“ESG is just a buzzword.” Not true. ESG is backed by real, measurable data and global reporting standards. It’s not just about looking good, it’s about being accountable.
“You earn less with ESG.” In fact, many ESG-aligned companies tend to be more resilient and deliver consistent long-term returns, especially during uncertain times.
“ESG data is hard to find.” Today, most financial platforms make it super easy to access ESG scores, filters, and tags, so you can make smarter, value-driven investment choices.

To conclude

ESG investing isn’t just a feel-good idea — it’s a smart, purposeful way to grow your wealth. With stricter regulations and growing awareness, the demand for ESG-focused investments is only going to rise. Whether you're just starting out or have years of experience, it’s now easier than ever to align your investments with the values you care about.

In the end, ESG investing lets you grow your money while supporting a better future, for you, and for the world.