How are ESG funds different from mutual funds?

NEW DELHI: Environmental, social, and governance (ESG) funds are investments that make investment decisions based on environmental, social, and governance factors. A company that makes investments in an ESG fund should be well-run and have a positive impact on the environment and society. Additionally, it seeks to benefit society and the environment while also producing financial returns.
There are numerous ESG funds available to invest in a wide range of assets, including stocks, bonds, and real estate. In recent years, ESG funds have received a lot of attention as more investors seek to align their investments with their values.
ESG equity funds
Mutual funds that invest in companies that have strong environmental, social, and governance (ESG) practices are known as ESG equity funds. ESG funds aim to promote sustainable business practices and assist companies in doing good for society. Most of the ESG funds also exclude companies that are harmful to the environment or society, such as those that manufacture tobacco products or nuclear weapons.
Recently, Bajaj Allianz Life Insurance announced the launch of the Bajaj Allianz Life Sustainable Equity Fund. Because it is a ULIP (Unit Linked Insurance Plan) fund, the customer has the option to switch to another fund offered by the product since this fund is open-ended. The ULIP product, however, has a five-year lock-in period per regulation.
How is it different from a mutual fund?
Traditional mutual funds have nothing in common with ESG mutual funds. As ESG focuses on investments that are beneficial to society, the environment, and the way the government runs the country.
Traditional mutual funds are typically managed to maximize profits while ignoring ESG factors. It implies that conventional mutual funds might make investments in businesses that harm the environment or society.
Additionally, they might have various weighting schemes and utilize various screens when selecting investments.