The recent integration of Environmental, Social, and Governance (ESG) criteria into investment decision-making has been an important trend in the financial industry. This conceptual study examines the impacts of ESG integration on the financial performance and risk management of mutual funds. The first section is a reflection on the motivations for the incorporation of ESG factors into investment strategies, including growing awareness of sustainability challenges, changing investor preferences, and regulatory pressures. The paper then identifies various methods of ESG integration in mutual funds through the application of the approaches from sustainable finance and portfolio management. These methods include screening methodologies, integration techniques, and active ownership strategies—engagement and proxy voting. The article further examines the empirical evidence on the relationship between ESG integration and financial performance metrics, including risk-adjusted returns, volatility, and downside protection. This includes a review of academic studies, industry reports, and practitioner perspectives on the extent to which ESG considerations contribute to long-term value creation and investor outcomes within mutual fund portfolios. Third, this paper investigates the role of ESG integration in enhancing risk management practices, including the identification and mitigation of ESG-related risks, such as climate change, social controversies, and corporate governance failures, alongside their financial materiality to mutual fund managers. In addition, this research examines challenges and limitations associated with ESG integration in mutual funds, including data availability and quality, methodological differences amongst ESG assessment frameworks, and potential trade-offs between financial performance and ESG. This study intends to educate regulators, other stakeholders, and investment professionals on the advantages and disadvantages of sustainable investing techniques by offering a thorough review of ESG integration in mutual funds. In the end, the study advances knowledge on how ESG factors might be successfully included into mutual fund investing procedures in order to meet future financial as well as non-financial goals.