Capital markets regulator Securities and Exchange Board of India (SEBI) has proposed stringent norms for Environment Sustainability and Governance (ESG) funds in a consultation paper, which is open for suggestions till November 16.
SEBI has suggested that ESG mutual fund schemes fall under thematic category so they should invest not less than 80 per cent of the total ESG assets under management in securities following ESG as a theme. The regulator has also proposed that the residual portion of the investment should not be starkly in contrast to the philosophy of the scheme from the theme. Asset management companies (AMCs) shall endeavour to have a higher proportion of the assets under the ESG theme and make suitable disclosures, it said.
This allocation suggestion is pretty much in line with SEBI’s guidelines on Categorization and Rationalization of schemes issued in October 2017. As per this ruling, thematic and sector fund should invest at least 80 per cent assets in equity or equity-related instruments of a particular sector or theme.
The regulator has suggested that the name of the scheme should accurately reflect the nature and extent of the scheme’s ESG focus taking into account the investment objective and type of strategy followed. “All AMCs will be required to have a Responsible Investment Policy incorporating aspects of ESG investing. The investment objective shall be as per the Responsible Investment Policy of the AMC,” suggests the consultation paper.
The regulator has also asked whether Responsible Investment Policy of AMCs should be revised to contain a clause that from October 1, 2022, AMCs shall only invest in securities which have Business Responsibility and Sustainability Report (BRSR) disclosures?
Sebi has asked the Association of Mutual Funds in India (AMFI) to encourage industry participants to develop common sustainable finance-related terms and definitions in line with global standards. AMFI should also promote financial and investor education initiatives relating to sustainability, or, where applicable, enhance existing sustainability related financial and investor education initiatives.
With the increased interest and focus on investments in the ESG space globally, AMCs in India have also been launching equity schemes in the ESG space under the thematic category. As per SEBI data, as on September 30, 2021, there are eight ESG Thematic equity schemes with an AUM of Rs 12,085 crore. There is one ESG ETF and one ESG ETF Fund of Fund with AUM of Rs 174 crore and Rs 144 crore, respectively, as on September 30, 2021
“Globally, the concept of ESG investments is still emerging and there are no universally agreed norms and standards. Standard setting bodies like IOSCO, FSB etc. are working in this area including development of standardised disclosures for funds in the ESG space,” reads the consultation paper.
The stakeholders and public can give their opinions and suggestions on the consultation paper till 16 November.
