Sustainable investing funds are designed to align with investors’ values and sustainability priorities. The number of thematic-ESG funds has been growing in recent years. Thematic funds are equity mutual funds that invest in stocks linked to an ESG theme. They could be linked to various sustainability issues, including renewable energy, sustainable health, smart mobility, etc.
As investors are increasingly looking for investment solutions that reflect their values and sustainability priorities, these thematic funds try to appeal to different investor personas. Similarly, some investors are sensitive to certain areas of investment they want to avoid – such as arms trade, tobacco, alcohol, and fossil fuels. Hence ESG funds often apply systematic exclusions to certain industries and sectors.
ESG portfolios are tilted towards companies that are greener and more socially responsible than their peers. Hence companies have the incentive to invest in their own sustainability to attract sustainable finance.