ESG investing in India is undergoing significant transformation driven by regulatory, technological, and demographic factors. Since 2020, the number of ESG funds has quadrupled, with retail investors increasingly factoring in environmental and social impact alongside financial returns. The Securities and Exchange Board of India (SEBI) mandates Business Responsibility and Sustainability Reporting (BRSR) for the top 1000 listed companies, enhancing transparency and enabling better ESG assessments. Technology integration, particularly AI and big data, is revolutionizing ESG analytics, allowing investors to track carbon footprints, governance practices, and social impact more accurately. Millennials and Gen Z investors, who prioritize sustainability and ethical investing, are fueling demand for ESG funds and green bonds. The government’s push towards net zero emissions by 2070 and incentives such as production-linked subsidies for renewables and electric vehicles under FAME II are catalyzing investments in green infrastructure and clean energy. Globally aligned frameworks like the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) are increasingly adopted by Indian firms, facilitating cross-border ESG investment flows. This trend is reflected in the projected CAGR of 23.3% for India’s ESG market, expected to grow from USD 1.2 billion in 2024 to USD 4.1 billion by 2030. The growth trajectory is underpinned by rising capital inflows from global institutional investors and growing retail participation, making ESG investing a core part of the Indian financial ecosystem.

Green bonds have emerged as a vital instrument in India's sustainable finance ecosystem. These bonds finance projects with positive environmental outcomes such as renewable energy, energy efficiency, and pollution control. Post Budget 2025, green bonds have become even more attractive due to reduced long-term capital gains tax, encouraging both issuers and investors. India’s green bond market has seen a surge in issuances from corporates like NTPC, Indian Railways, and the State Bank of India, targeting funding for solar parks, electric trains, and clean energy infrastructure. The Reserve Bank of India (RBI) and SEBI have introduced frameworks to ensure the credibility and transparency of green bonds, mitigating risks of greenwashing. Retail investors can access green bonds directly or via ESG mutual funds and ETFs, which typically deliver returns comparable to traditional debt instruments but with added sustainability benefits. The Indian green bond market is expected to grow at a CAGR of over 20% through 2028, supported by government targets and international capital inflows. However, investors should be mindful of credit risk, project execution risk, and the evolving regulatory landscape when investing in green bonds.

Retail investors in India seeking to build sustainable wealth through ESG investing should adopt a structured approach incorporating diversified ESG assets, risk management, and alignment with long-term goals. Key strategies include:

1. Diversified ESG Mutual Funds and ETFs: Select funds with strong ESG scoring methodologies and proven track records. Examples include SBI Magnum ESG Fund and Aditya Birla Sun Life ESG Fund, which have delivered 10-12% annualized returns over 3 years.

2. Green Bonds and Fixed Income: Allocate part of the portfolio to green bonds issued by credible Indian entities to balance risk and provide steady income with sustainability impact.

3. Direct Equity in ESG Leaders: Invest in companies with robust ESG credentials, such as Tata Power, Infosys, and Dabur India, which combine sustainable practices with strong financials.

4. Use of AI-Driven ESG Analytics: Leverage platforms that provide AI-based ESG scores to identify opportunities and monitor portfolio ESG risk dynamically.

5. Engagement and Voting: Where possible, participate in shareholder engagement and proxy voting to drive better ESG practices.

6. Continuous Monitoring: Stay updated on regulatory changes, corporate disclosures, and ESG ratings to adjust allocations proactively.

*ESG Ratings based on MSCI India ESG scores.