Post Covid Surge In ESG Mutual Funds In India: Is It A Structural Break?

Abstract

Wide range of issues that some years ago were considered ‘non-financial’ such as climate change, environment, biodiversity, human rights and fair wages and remuneration are now coming to the fore as factors that can have a significant impact on investment value. Globally, there has been an increase in the number of large-scale market participants who have become socially conscious and want to allocate their investments toward businesses that acknowledge the relevance of environmental, social, and governance (ESG) factors.
In line with what’s happening globally, India too is witnessing an increasing focus on ESG, especially after Covid-19 emerged as a pandemic. AUM of Indian ESG mutual funds increased from ₹ 2747.66 Cr as on 31st January 2020 to ₹ 12,544.02 Cr on 31st December 2021, which as a percentage of the total AUM of the Indian Mutual Fund industry increased from 0.10% to 0.33% during this period.
We try to find out whether the Post Covid Surge in AUM of ESG Mutual Funds in India indicates a Structural Break. Our findings, based on Chow Test outcomes, confirm that this surge is indeed a structural change.