The Securities and Exchange Board of India (SEBI) on Tuesday suggested that since ESG or environmental, social and governance-based funds come under thematic category, a minimum of 80% of their total assets in these schemes should be invested in securities. Subject.
Further, it is proposed that the remaining part of the investment should not be contrary to the philosophy of the scheme from the theme.
“Globally, there is a spotlight on ESG disclosures as regulators around the world look to asset managers to avoid the risk of ‘greenwashing’ by increasing ESG disclosures. Kaustubh Belapurkar, director-manager research on ESG funds, said Morningstar India SEBI’s intended disclosure is a step in the right direction as the Indian ESG fund space is evolving and is a positive sign for setting the framework.
Subject to SEBI’s suggestion of ESG schemes to invest at least 80% of their assets in securities, Belapurkar said Indian ESG funds follow an ESG integration and/or best in class investment approach. “Setting minimum standards for ESG funds is a good way to ensure that the funds are true to the label,” he said.
To ensure this, SEBI in 2017 had clarified that equity and equity-related instruments of a particular sector or particular subject should constitute 80% of the minimum investment in sectoral or thematic funds.
Meanwhile, the market regulator on Tuesday asked the Association of Mutual Funds in India (AMFI) to encourage industry players to develop common sustainable finance-related terms and definitions in line with global standards. There is an important difference between the terms and definitions related to ESG.
These suggestions are part of the consultation paper on introducing disclosure norms for ESG mutual fund schemes, brought out by SEBI on Tuesday.
With increasing interest and focus on investing in the ESG sector globally, asset management companies (AMCs) are also launching equity schemes in the sector. According to SEBI, as of September 30, there are eight ESG thematic equity schemes having assets under management (AUM). ₹12,085 crore. There is an ESG Exchange Traded Fund (ETF) with AUM and an ESG ETF Fund of Funds (FOF). ₹174 crores and 144 crores respectively.
In the consultation paper, SEBI also suggested that the name of the scheme should accurately reflect the nature and extent of the ESG focus of the scheme, keeping in view the investment objective and type of strategy.
It is proposed to make disclosure mandatory for disclosure in Scheme Information Documents (SIDs) for mutual funds launching ESG schemes. Fund houses that already have ESG schemes need to update their SIDs with the disclosure.
SEBI said, “The investment should be designed to generate a beneficial ESG/sustainability effect along with financial returns and the AMC should qualitatively convey the ‘real-world’ outcome, especially in the integration For strategies related to impact, investment and sustainable objectives,” SEBI said in the paper.
It has also been suggested that the Responsible Investment Policy of AMCs should be amended to include a clause that from October 1, 2022, AMCs will invest only in securities that have a Business Responsibility and Sustainability Report (BRSR) disclosure. In schemes for which there is no BRSR disclosure, the existing investment will be grandfathered for a period of one year till 30 September 2023.
From FY 2022, India Inc is to start disclosing ESG related matters in the new BRSR format which is more comprehensive. Currently, Business Responsibility Reporting (BRR) is more like a self-compliance checklist.
Driven by increasing investor interest in environmental, social and governance (ESG) issues, sustainable funds have gained a lot of traction in India over the past year.
SEBI is in active discussions with various stakeholders to bring more detail in the disclosure of listed companies in the ESG sector. The regulatory consultation paper is open until 16 November for comment.
Don’t miss a story! Stay connected and informed with Mint.
download
Our App Now!!
.