Aditya Birla Sun Life

ESG Fund
An open-ended equity scheme investing in companies
following Environment, Social & Governance (ESG) theme

NFO Opens: 04th December 2020

NFO Closes: 18th December 2020
What is ESG?
 What is ESG?
ESG lens enables to look beyond the traditional investment parameters to identify high quality
socially responsible companies for investing

ESG stands for…

Environmental Impact Social Responsibility Corporate Governance

(Planet) (People) (Process)

ESG investing shifts focus from “How profitable a business is” to “How does the business earn its profits”

ESG investing symbolizes Sustainable and Responsible Investing (SRI)

 Pillars of ESG

Environmental Social Governance

- factors relating to management
- factors impacting the planet - factors impacting lives of people
of companies

• Carbon Emissions • Data Protection & Privacy • Board Composition

• Climate Change • Customer Satisfaction • Ownership
• Energy Efficiency • Labour Management • Executive Remuneration
• Water & Waste Management • Gender Diversity • Bribery and Corruption
• Biodiversity • Community Relations • Whistleblower Scheme
• Deforestation • Human Rights • Audit Committee Structure

These pillars help identify efficient, socially responsible and well governed businesses!

The above list is illustrative and not exhaustive.

 World is moving towards Responsible & Sustainable Investing

Global AUM (in $ trillion) under Sustainable Investing

14.1
12.0 12.0 • Global AUM under sustainable investing has risen to $30.7
10.8
8.7 trillion in 2018
6.6

2.2
• Europe accounts for ~46% of global AUM under sustainable
1.7
0.0 0.5 0.7 1.1 0.1 0.5 0.7 investing
Europe US Japan Canada Australia/New
Zealand
2014 2016 2018 • In the US focus on Responsible investing is continuously
increasing
3500
Number of UNPRI Signatories – Financial Yearwise
3038
3000 • No. of Signatories at UNPRI grew to 3038 in FY20
2500 2372
1951
2000 1714
1501
1500 1251 1384
1000 734
890
1050 1186
Flows into ESG investing is expected to
500
63 185
361
523
further increase with growing awareness…
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Global Sustainable investment Review; https://www.unpri.org/pri/about-the-pri

 Why is
ESG important?
 ESG related risks are becoming more important than traditional
financial risks…
Top 5 Global Risks in Terms of Likelihood
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Asset Price Storms & Income Income Income Interstate Involuntary Extreme Extreme Extreme Extreme
1st Collapse Cyclones Disparity Disparity Disparity Conflict Migration Weather Weather Weather Weather

China Fiscal Fiscal Extreme Extreme Extreme Involuntary Natural Climate Action Climate Action
2nd Economic Flooding Imbalances Imbalances Weather Weather Weather Migration Disasters Failure Failure
Slowdown

Chronic Greenhouse Greenhouse Failure of Climate Action Natural Natural Natural

3rd Disease Corruption Gas Gas Emissions Unemployment National Failure Disasters Cyberattacks Disasters Disasters
Emissions Governance

Biodiversity Climate State Interstate Terrorist Data Fraud Data Fraud Biodiversity
4th Fiscal Crises Loss Cyberattacks Water Crises Action Collapse Conflict Attacks & Theft & Theft Loss
Failure or Crises

Global Population Natural Data Fraud Climate Human-made

Governance Climate Water Crises Cyberattacks Unemployment Cyberattacks Environmental
5th Change Ageing Catastrophes & Theft Action Failure
Gaps Disasters

Economic Environmental Geopolitical Societal Technological

Rising risks from ESG factors are increasingly pushing companies to adopt more responsible
and sustainable way of doing business…
Source: World Economic Forum – The Global Risks Report 2020
 Noncompliance to ESG practices increases Business Risk

Global Experience - Impact of poor E.S.G. practice

November January January July

2014 2018 2020 2020

Global Auto major Global Petroleum Global Auto giant Global Mining
fined $100 million major fined a fined $149 giant to pay $2
for violations of record $65 million for diesel billion for Arctic
Clean Air Act in billion by US govt emissions fuel spill in
the US for Deepwater violations in Russia
Horizon oil spill Canada
in Gulf of Mexico

Case studies for illustration purpose only. Not intended as advise

Source: Newspaper Articles
 Noncompliance to ESG practices increases Business Risk

Global Experience - Impact of poor E.S.G. practice

May July September October

2018 2019 2019 2020

Global Banking Global Social Workers strike Six oil and gas
major pays $480 Media giant costs global auto fields shut as
million to settle faces $5 billion major up to $4 workers strike
fake accounts fine over privacy billion in 2019 over pay in
lawsuit in US violations in US Norway

Case studies for illustration purpose only. Not intended as advise

Source: Newspaper Articles
 Noncompliance to ESG practices increases Business Risk

Global Experience - Impact of poor E.S.G. practice

January June September October

2020 2020 2020 2020

Global Aircraft German Financial Global Auto major Global Financial

major to Pay $4 powerhouse filed to pay $18 million conglomerate
billion to settle for insolvency fine for disclosing fined $350
Corruption after $2.1 billion misleading million in Hong
Inquiry financial fraud information for Kong for 1MDB
disclosed fund raising in US Malaysian bribery
scandal

Case studies for illustration purpose only. Not intended as advise

Source: Newspaper Articles
 Noncompliance to ESG practices increases Business Risk

Indian Experience - Impact of poor E.S.G. practice

Environmental

Social

Governance

Case studies for illustration purpose only. Not intended as advise

Source: Newspaper Articles
 ESG compliance has roots in Market performance too

Highly Likely
Unlikely yet
Good but
Stock Price Performance

Trends from Western World

possible suggests:
not necessary
• Companies with Poor ESG
practice could be more likely to
witness weak returns,

Highly • Adherence to strong ESG

Highly Likely Unlikely practice may result in better
Bad operational performance and
yet possible thereby better returns

Bad Good
ESG Compliance
 How does ESG add value

to Businesses? to Investors?
 ESG integration in Business helps improve sustainability

Encourages efficient usage of resources

Enhances ability to attract and retain talent Risk

Reduces regulatory and reputational risks

Improves customer satisfaction and increases brand loyalty Efficiency

Long term
sustainability
Improves ability to raise capital at lower cost

All stakeholders (regulators, owners, customers and employees) are becoming aware of implications
of integrating ESG factors in business!
 Sustainable Businesses are likely to witness sustainable growth

Global Experience - Benefits of Solid ESG practice

Reduced Capital Cost Improved Efficiency Enhanced Returns

• 90% of studies show sound • 88% of studies show solid ESG • 80% of studies show good
sustainability standards lower the practices result in improved sustainability practices positively
cost of capital of companies operational performance of influence share price of companies
firms
• 1.8% reduction in Cost of Equity • 1.3% alpha in 10 years by Nifty 100
ESG Index over Nifty 100 Index

Higher ESG Score => Sustainable Business Model => Higher Earnings Growth & Better Quality Profits
Source: Oxford Research Report “From the Stockholder to the Stakeholder” – March 2015; MFIE
 How does ESG investing add value to investors?

ESG Investing complements Traditional Investing

Fundamental Research Sustainable & Responsible Investing

Driven Investing
Quantitative Metrices Quantitative Metrices
like ROE, ROCE, D/E, FCF, Valuation etc

Qualitative Metrices Traditional Qualitative Metrices

like Management Quality Investing
ESG
Investing ESG Parameters
 How does ESG investing add value to investors?

Screening to exclude sectors / ESG non-compliant companies Helps Avoid

companies with negative run higher regulatory and
externalities reputational risks Risky
Companies

Strong ESG practices => Higher ESG Score => Potentially Helps Identify
Improvement in Brand Image and Sustainable Business Model => Sustainable
Customer loyalty Sustainable Growth over the long term Companies

Helps
High quality socially responsible Increasing flows into ESG investing Improve
companies are expected to be augurs well for stock performance Return
Sustainable Quality Compounders Potential
 Historically, ESG investing has generated higher risk adjusted returns

Cumulative Returns

CAGR since 1st Apr 2011

300
263.7
250
Nifty 100 TRI: 9.3% Lower Volatility
Nifty 100 ESG TRI: 10.6% 233.5
Std Dev.^ Nifty 100 TRI Nifty 100 ESG TRI
200
3 Years 20.75% 20.61%
150
5 Years 18.33% 18.22%
100 ^Standard Deviation has been calculated on annualised basis using history
of monthly returns for 3 years & 5 years period respectively.
50 Past performance may or may not be sustained in the future.

Nifty 100 TRI Nifty 100 ESG TRI

Historically, “Responsible Investing” has rewarded investors over the long term!
Index data rebased to 100 since 1st April 2011 till 30th Oct 2020; Source: MFIE
 Historically, ESG investing has rewarded investors over the long term

Calendar Year Returns

3% 3% -0.9% 0.4% -0.4% 0.5% 2.7% 0.4% 6.3%

35.5% 34.9% 34.0% 33.3%

32.5% 32.9%
In 7 out of 9 instances,
Nifty 100 ESG TRI
10.9% 11.8% 12.3% outperformed Nifty 100 TRI
7.9% 5.2%
5.0% 4.6% 2.6% 3.0%

-0.8%
-1.3% -3.3%

2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD

Nifty 100 TRI Nifty 100 ESG TRI Outperformance Underperformance

The trend of outperformance is becoming more consistent…

Data as on 30th Oct 2020; Source: MFIE | Past performance may or may not be sustained in the future.
 Directionally the world is moving towards Responsible Investing

Increasing Accountability ESG Integration Emerging Opportunities Rising Flows

• Regulations related to ESG
factors are becoming
stringent
• Non-compliant companies
are being punished by all
stakeholders
• Focus on integrating ESG
to improve business
sustainability is increasing
• Emergence of ESG • Flows into ESG focused
focused business Sectors/Companies are
opportunities like consistently increasing
renewable energy • Global AUM under SRI has
technologies, electric risen to $30.7 trillion in 2018
vehicles, clean tech • No. of Signatories at UNPRI
etc grew to 3038 in Fy20

Shifting Focus
With the changing
“Growth “Sustainable Growth dynamics, ESG investing
& towards & will become core part of
Profit” Sustainable Profit” every portfolio
 Invest Responsibly through

Aditya Birla Sun Life

ESG Fund
(An open-ended equity scheme investing in companies following
Environment, Social & Governance (ESG) theme)
 Aditya Birla Sun Life ESG Fund: Positioning & Approach
Fund Positioning
• An open ended thematic equity scheme investing in companies following ESG theme
• Market cap agnostic portfolio with 60-80% in Large Cap and remaining in Mid & Small Cap
• Fund can invest in foreign securities up to 35% of the portfolio
• “True to Label” - Portfolio exclusion to non-conforming sectors

Investment Approach

Focused Portfolio Fundamental Research Driven Sustainable Growth Orientation “True to Label”

Blend of top down & Portfolio will focus on ESG Score

40-50 stocks portfolio Low Mid High
with high active share bottom up approach for ESG compliant companies with Large

Market Cap
portfolio construction high growth potential Mid
Small

Suitability The fund is suitable for Long term Equity Investors with an Investment horizon of 5 years and above

The Scheme does not guarantee/indicate any returns. There can be no assurance that the schemes’ objectives will be achieved.
How is ESG screening done?
Step 1: Companies are scored on the 3 pillars of ESG basis their actions

High Score Low Score

E
Exploitation of natural resources
Trying to reduce any negative impact on environment
Creating pollution
Taking actions to preserve natural resources
Improper waste management

S
Human rights violation
Maintains healthy relationship with all the stakeholders Unfair treatment of people
Exploitation of customer

G
Unjust treatment of minority shareholder
Strong corporate governance
Data forgery and fraud
Transparent & Ethical practices
Engaged in malpractices

Step 2: Each company is assessed basis its score on the 3 pillars of ESG and news/controversies to arrive at
weighted average ESG score and rating
Step 3: ESG score is then used to determine the suitability for inclusion/exclusion from investment universe
 Aditya Birla Sun Life ESG Fund: ESG Evaluation & Portfolio Construction
Process

ESG Investment Universe ~500

• Companies with ESG scores are screened to find

ABSL MF Investment Universe commonality with ABSL MF Investment Universe
Follows a diligent
• Exclude deemed harmful or unfavorable sectors from the process to select
Sector Level Screening societal perspective 40-50 companies
• E.g. Cluster Munitions, Anti-Personnel Mines, Chemical
and Biological Weapons, Coal & Tobacco etc from ESG universe
of ~500 companies
Stock Level • Eliminate bottom decile stocks basis ESG score
• Re-evaluation of companies in case any controversy / negative
Screening news surfaces

Portfolio
Construction • Select stocks basis ESG score and rating, Fundamental Analysis &
Valuation
40-50 companies

*For ESG scores and ratings, Partnered with ‘Sustainalytics’ – A leading global provider of ESG data and research
^Internal analyst rating and score shall be considered for companies that do not have ESG score
 Aditya Birla Sun Life ESG Fund: Portfolio Construction Process

Stock Selection & Position Sizing Process Model Portfolio - Sector Allocation

Parameters Weights
High

Selective
exposure basis Maximum Banking & Finance 25 – 35%
improving Allocation
Fundamental Quality

I.T 20- 25%

ESG trend
Consumer Goods 10-15 %
Healthcare 4 – 8%
Selective International Equity 0-10%
exposure
No Exposure
basis improving Model Portfolio Allocation is for illustration purpose only. Not intended as advise
fundamentals and Fund may or may not have any future position in these sector(s)
The portfolio of the scheme is subject to changes within the provisions of the
Low

Scheme Information document of the scheme. Please refer to the SID for the asset
allocation, investment pattern, strategy and risk factors.

Low High
ESG Compliance
Why Invest in Aditya Birla Sun Life ESG Fund now?

ESG concept is at a very nascent stage in India and is widely unexplored, while it’s a very
established theme globally

Strong fund flows into ESG compliant companies increases possibility of re-rating and
augurs well for longer term market performance

ESG compliant companies usually have sustainable business model, witness sustainable
growth and tend to be Quality Compounders

Fund endeavours to participate in ESG aligned emerging opportunities, eliminate risky

businesses and invest in sustainable companies to generate better risk adjusted returns
 Aditya Birla Sun Life ESG Fund: Features & Asset Allocation

Scheme Name Aditya Birla Sun Life ESG Fund

Fund Manager Mr. Satyabrata Mohanty, Mr. Vinod Bhat for Overseas Investments
Scheme Type An open-ended equity scheme investing in companies following Environment, Social & Governance (ESG) theme
To generate long-term capital appreciation by investing in a diversified basket of companies following Environmental, Social and
Investment
Governance (ESG) theme.
Objective
The Scheme does not guarantee/indicate any returns. There can be no assurance that the schemes’ objectives will be achieved.
Scheme Benchmark Nifty 100 ESG TRI
Equity & Equity related instruments of companies following the Environment, Social & Governance (ESG) theme: 80% - 100%. Other
Asset Allocation Equity & Equity Related instruments: 0-20%.
Debt & Money Market Instruments (including units of Debt & Liquid Mutual Fund schemes): 0-20%. Units issued by REITs & InvITs: 0-10%
Regular Plan and Direct Plan; Both plans will have two options: Growth and Dividend. Dividend option will have Payout and Reinvestment
Plans & Options
Facility
Entry Load : NIL; | Exit Load : For redemption / switch-out of units on or before 90 days from the date of allotment: 1% of applicable NAV.
Entry & Exit Load
For redemption / switch-out of units after 90 days from the date of allotment: Nil
NFO Open Date 4th Dec 2020
NFO Close Date 18th Dec 2020

Note: For details, refer SID/KIM of the scheme.

Aditya Birla Sun Life ESG Fund: Risk Factors & Suitability

This product is suitable for investors who are seeking*: Riskometer

• Long term capital appreciation

• An equity scheme that invests in companies following the
Environment, Social & Governance (ESG) theme

*Investors should consult their financial advisors if in doubt whether the product is suitable for them.
Mutual Fund investments are subject to market risks,
read all scheme related documents carefully.
 Disclaimer:
This document is solely for the information and understanding of intended recipients only. If you are not the intended recipient, you
are hereby notified that any use, distribution, reproduction or any action taken or omitted to be taken in reliance upon the same is
prohibited and may be unlawful. Wherever possible, all the figures and data given are dated, and the same may or may not be
relevant at a future date. In the preparation of the material contained, Aditya Birla Sun Life AMC Limited (“ABSLAMC”) has used
information that is publicly available including information developed in-house. Information gathered and material used in this
document is believed to be from reliable sources. ABSLAMC however does not warrant the accuracy, reasonableness and / or
completeness of any information. Further the opinions expressed and facts referred to in this document are subject to change
without notice and ABSLAMC is under no obligation to update the same. While utmost care has been exercised, ABSLAMC or any of
its officers, employees, personnel, directors make no representation or warranty, express or implied, as to the accuracy,
completeness or reliability of the content and hereby disclaim any liability with regard to the same. Recipients of this material
should exercise due care and read the scheme information document (including if necessary, obtaining the advice of
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shall not copy/circulate/reproduce/quote contents of this document, in part or in whole, or in any other manner whatsoever
without prior and explicit approval of ABSLAMC. The sector(s)/stock(s)/issuer(s) mentioned in this presentation do not constitute
any research report/recommendation of the same and the Fund may or may not have any future position in these
sector(s)/stock(s)/issuer(s).
For internal & private circulation only.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.