Regulators need to beware of ‘greenwashing’ by fund, issuers: Ajay Tyagi

Greenwashing is the process of portraying an organization’s products or services as environmentally friendly.

“While investors may be regulatory agnostic on where they invest, they have an important role to play in ensuring the disclosure of ESGs by funds and issuers and protecting against greenwashing,” Tyagi said. He was speaking at FICCI’s event on Driving Climate Action through Disclosure. : BRSR as a Base for ESG Action in India. The event took place in the backdrop of the 26th United Nations Climate Change Conference, COP26.

Climate change concerns and sustainable development have taken center stage in global priorities, especially in the aftermath of the COVID-19 pandemic.

“These developments have far-reaching implications for corporates. Companies now face sustainability risks to their businesses, which could manifest as transition risks as we move to a low-carbon economy, related to climate change.” from events to their assets in the form of physical risk or even reputational risk,” Tyagi said.

In order to bring in greater transparency and enable market participants to identify and assess stability-related risks and opportunities, the Securities and Exchange Board of India (SEBI) introduced the Business Responsibility and Stability Report (BRSR) in May.

BRSR seeks disclosure from listed entities on their performance against the nine principles. These nine principles echo the UN’s Sustainable Development Goals (SDGs) and cover both environmental and social aspects such as climate action, responsible consumption and production, gender equality, working conditions, etc.

Tyagi said investors are realizing the implications of sustainability risks and have started taking these as a material for their investment decisions. “This is reflected in the recent increase in net assets and inflows into permanent funds globally,” he said.

Global durable fund assets have more than quadrupled over the past two years, from a little less than $900 billion at the end of September 2019 to $3.9 trillion at the end of September 2021, according to data from Morningstar. In India too, out of this 10 ESG themed mutual fund schemes were launched after 8 January 2020.

Meanwhile, to protect investors from greenwashing, the regulator recently came out with a paper in which it proposed that at least 80% of the total assets of ESG funds should be in securities after the permanent subject.

Furthermore, the remaining 20% ​​of assets should not be exactly contrary to the ESG philosophy.

Tyagi in his speech today also highlighted that the consultation paper also proposed that the investment strategy (like exclusion, positive screening, impact investing) in disclosure in the information document (SID) of schemes by the fund houses, sustainable Objectives, the decision-making process should be involved. Investments including use of proprietary or third party ESG scoring process/methodology etc.