Mutual Funds: SEBI Unveils New Categories for ESG Schemes

Markets regulator the Securities and Exchange Board of India (SEBI) has given its go-ahead to new categories of mutual fund schemes for environmental, social, and governance (ESG) investing.

The six new categories can adopt any of the following ESG strategies such as exclusions, integration, best-in-class and positive screening, impact investing, sustainable objectives, transition, and transition-related investments.

A disclosure and compliance framework has also been initiated for these schemes. At present, it is possible for mutual fund houses to introduce only one ESG scheme that falls under the thematic category of equity fund schemes.

At least 80% of the total assets under management (AUM) of ESG schemes are mandated to be directed toward investments in equity and equity-related investment instruments of a particular strategy that may be chosen for the scheme, stated SEBI. However, the remaining 20% should in no way contradict the objective of the scheme.

In addition, 65% of AUM is required to be invested in entities or companies with comprehensive business-responsibility and sustainability reporting (BRSR) disclosures. Such companies are also required to provide assurance on BRSR Core disclosures, emphasising their commitment to ESG responsibilities.

BRSR Core highlights 49 key parameters for ESG reporting, under which objective disclosures are required to be made along the lines of environment, social causes, and corporate governance. Through this, the assessment of firms across sectors and industries is suitably enabled.

With this latest move, the markets regulator has also notified the introduction of a few disclosure requirements for ESG schemes. For example, mutual funds would need to proved in clear manner the name of the ESG strategy in accordance with the name of the ESG fund or scheme.

Mutual funds would be required to disclose security-wise BRSR Core scores along with the BRSR scores in the monthly portfolio statements of ESG schemes, as per SEBI’s directive.

In addition, mutual funds would be required to provide information related to the name of the ERPs that proved ESG scores for the ESG schemes, besides the ESG scores.


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