New ESG Categories introduced for Sustainable Investing | Fusion - WeRIndia

The Securities and Exchange Board of India (Sebi) has taken a significant step towards promoting sustainable and responsible investing by allowing mutual funds to introduce five new categories under the ESG (environmental, social, and governance) scheme.

These measures aim to facilitate green financing, ensuring enhanced disclosures and mitigating greenwashing practices.

The capital markets regulator announced the introduction of the five new ESG categories. They are exclusions, integration, best-in-class and positive screening, impact investing, and sustainable objectives.

Previously, mutual funds were limited to launching only one ESG scheme under the thematic category of equity schemes.

Sebi’s circular highlights the importance of a disclosure framework for these ESG schemes.

Mutual funds will now be required to clearly indicate the name of the ESG strategy in the name of the respective ESG fund.

Additionally, monthly portfolio statements of ESG schemes will have to include security-wise BRSR Core scores.

In addition, they have to include the names of ESG Rating Providers (ERPs) providing ESG scores and the actual ESG scores.

The new provision mandates ESG schemes to invest a minimum of 65% of their assets under management (AUM) in listed entities that have undertaken BRSR (Business Responsibility and Sustainability Reporting) Core assurance. The remaining AUM can be invested in companies that disclose their BRSR.

These changes are set to take effect immediately, except for the 65% AUM requirement, which will be applicable from October 1, 2024.

In case of a change in ERP, mutual funds will also need to disclose the reasons for such changes in their next monthly portfolio statements for ESG schemes.

Moreover, to increase transparency, Asset Management Companies will now be required to disclose the votes cast by ESG schemes every quarter, along with the specific rationale supporting their voting decisions.

This will apply from April 1, 2024, onwards. The disclosure should clearly indicate whether the resolution has been supported or not due to any environmental, social, or governance reasons.

These regulatory changes are aimed at promoting responsible investing practices and encouraging companies to adopt sustainable practices.

In addition, they aimed to provide investors with better insights into ESG-related investment decisions.

By expanding the scope of ESG schemes and enhancing disclosure requirements, Sebi seeks to foster a more environmentally and socially conscious investment landscape in India.

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