How to Invest in ESG Funds in 2026—Is It Really Worth It?

Sanya is 26, a marketing manager based in Pune, and earns ₹85,000 per month.

She invests ₹10,000 out of her own ₹20,000 monthly savings in SIPs. She has been investing in large-cap mutual fund schemes for 2 years and has a portfolio of almost ₹2,60,000 with an average CAGR (Compound Annual Growth Rate) of 11%.

Not bad, right?

However, there is something that has been on her mind recently. 

Her news feed is full of articles with these headlines:

1. Glacier melting in Ladakh
2. Massive layoffs in technology firms
3. Big companies that are committing tax fraud

And every time she sees that, she thinks—

“Yeh paisa jo maine invest kiya hai, kya yeh galat logon ke haath mein jaa raha hai?”

She wants to grow her wealth and do good with it.

It is where Sanya discovers ESG funds—a modern-day investment option that generates profit plus purpose.

Therefore, what are ESG funds, exactly?

They invest in companies that excel at:

• Environmental: Low carbon emissions, renewable energy use.
• Social: Equal pay, diversity, no child labour.
• Governance: Ethical leadership, clean financials 
  Now the question is on Sanya's (and yours, too?) mind:

"Are ESG funds worth it in 2025, or is it marketing ka jhaansa?"

Let's get into it.

What Exactly Are ESG Funds? A Desi Explainer

You might have come across the term ESG being used so widely nowadays, especially by fund houses and financial influencers. But how important is it to a retail investor in India?

In desi terms, think of ESG funds as building a “sanskari portfolio”.

Only those companies are invited that:

• Don’t pollute the environment
• Treat their employees with respect
• Avoid scammy boardroom drama

These are companies that make money the right way—without cutting corners or hurting society.

Still lost? Let's break it up even further:

How Sanya Did It

When Sanya wanted to dip her toes in ESG investing, she did not completely overhaul her portfolio overnight.

This is what she did in March 2025:

Switched ₹2,000/month from existing SIPs to a new ESG Mutual Fund (Axis ESG Equity Fund)

Began with a direct growth plan through an online channel (no agent commission, lower expense ratio)

Her investment goal: ₹24,000 in a year

Expected returns: Around 9% to 10% CAGR, slightly down but more value-driven

She also looked at the fund's ESG rating, historical returns (historical 3-year CAGR: 9.49%), and top holdings (Infosys, Tata Consultancy, HUL)

As she explains, "Same SIP cycle, bas, company ki soch thodi better honi chahiye na?"

Why Are ESG Funds the Talk of Dalal Street in 2025?

Yeh toh ab sab jaante hain—2023 and 2024 were filled with climate catastrophes, mass firings, and global regulatory crackdowns.

 Investors started to wonder:

"Mere paison ka impact kya hai?"

That’s when ESG funds took centre stage.

• Globally, sustainable fund assets touched an all-time high of $3.2 trillion by the end of 2024—an 8% jump from the previous year. (Morningstar)
  
  
• Closer to home, Indian giants like HDFC, SBI, and ICICI are now actively pushing ESG-themed mutual funds.

Sochne wali baat yeh hai—

“Jab bade players move kar rahe hain, should we really stay behind?”

India vs. World: Where Do We Stand on ESG?

ESG investment is mainstream globally, but in India, it is still waiting to find its place. Regulations are evolving, awareness is growing, and funding options are slowly on the rise. 

Whereas global markets have made ESG disclosure mandatory, India is at the "voluntary-to-mandatory" stage.

But private investors like Sanya aren't waiting for it to become popular. They're proactively taking control and making conscious investment choices—even in advance.

Here is a comparison of India's association with the global ESG trends, with real examples provided by Sanya's portfolio for better understanding:

So, Did Sanya Really Gain from ESG Investing? 

Yes—and not just ethically, but economically.

By investing ₹35,000 in an ESG fund in April 2025, Sanya was able to grow her investment by approximately ₹2,822 in 10 months (based on a 9.7% CAGR). That's a return of ~8.1% without regard to market movements.

But for Sanya, the gain was more than just money.

She now invests in companies that prioritise climate responsibility, ethical leadership, and inclusive workplaces—values that align with her own beliefs.

"Green" Mein Bhi Return Hai: ESG Funds' Performance

‘Returns toh sab dekhte hain, right?’

But in 2025, smart investors do not care much about numbers—they want profits with a purpose. ESG funds, once the 

"feel-good" funds, are now showing they can walk hand in hand with traditional mutual funds.

Here's where some of the top ESG funds have performed recently:

ESG Fund Performance Summary (as of early 2025):

For example, a couple of months ago,  Sanya started questioning where her money was going. She didn’t want her 

investments funding companies with shady ethics or poor environmental records. So, she decided to try something different.

She initiated a SIP of ₹4,000/month in the SBI ESG Exclusionary Strategy Fund, which has achieved approximately 8.73% CAGR in the past 3 years.

By 12 months, she had put in ₹48,000. 

Her portfolio? Worth around ₹51,555.

₹3,555 ka profit—not massive, but meaningful, considering the peace of mind she gets knowing her money is working towards something good.

“Yeh paisa sirf kama raha hai nahi... kuch accha bhi kar raha hai,” Sanya says with a smile.

How to Begin Investing in ESG Funds in India

Aam aadmi ke liye yeh kaafi simple hai—just 3 steps aur do. 

Step 1: Pick the Right ESG Fund

• Select from reputed ESG funds such as Axis ESG, SBI Magnum ESG, ICICI Prudential ESG, or Quantum ESG.

• Sanya selected the Axis ESG Equity Fund, which reflected a 3-year CAGR of 8.27% according to Axis MF (as of March 2025).

Step 2: Check the Ratings

• Review the fund's ESG strategy and historic performance on AMC sites or reputed websites such as Value Research.

• Sanya added that Axis ESG adhered to a disciplined "ESG integration" approach and displayed a consistent pattern of returns amidst market fluctuations.

Step 3: Start Investing

• Begin a ₹500/month SIP on Groww, Zerodha, or with your bank—simple and without paperwork.

• Sanya initiated a ₹2,000/month SIP in Axis ESG. In 12 months, she invested ₹24,000, which became approx. ₹25,980—a profit of almost ₹1,980.

Direct vs Mutual Route: ‘Kaunsa Best Hai for ESG?’

Sanya was confused at first—should she go the direct stock-picking route or stick to a mutual fund SIP for ESG investing?

She didn’t have hours to analyse quarterly reports or ESG disclosures, so she chose the mutual fund path. And it paid off—without the stress.

To help you decide what works best for you, here’s a comparison based on her real experience:

High – need to track ESG ratings, news, and reports

Trusted fund manager's expertise at Axis ESG

Returns Potential (3Y CAGR)

~8% to 9% CAGR 

Can be 12% to 15%, but highly volatile

Her ₹24,000 investment became ₹25,980 in 1 year

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