Evaluating the Efficacy of ESG Integration in India: A Comparative Risk-Adjusted Performance Analysis of Exclusionary vs. Best-in-Class Mutual Funds

This paper examines whether sustainable investment portfolios generate superior risk-adjusted returns relative to the broader market, using the Indian context as a case study. It compares the risk-adjusted performance of two Indian ESG funds, the SBI ESG Exclusionary Strategy Regular Growth fund, which follows a negative exclusionary screening approach, and the Quantum ESG Best-in-Class Strategy Fund Growth, which follows a positive best-in-class screening approach, against the Nifty 50 benchmark. Using the Sharpe and Treynor ratios over the period 2021 to 2026, the study evaluates whether sustainable investment strategies yield higher risk-adjusted returns, and identifies which ESG screening methodology demonstrates stronger risk-adjusted performance within the Indian market. The results show that both ESG funds outperform the Nifty 50 on a risk-adjusted basis, though neither achieves statistically significant outperformance in mean excess returns. The exclusionary strategy fund demonstrates marginally higher risk-adjusted returns than the best-in-class strategy fund, but this difference in mean excess returns is also statistically insignificant. The paper concludes by drawing investor implications from these findings, offering guidance on how different ESG screening approaches can inform portfolio construction and decision-making.