“This will also result in building trust amongst retail investors towards thematic funds. Sebi has moved one step ahead from investor protection to environment protection,” Makarand M Joshi, founder of MMJC & Associates, said.
The capital markets regulator on Thursday allowed mutual funds to introduce five new categories under ESG and put in place a disclosure framework for them.
The five new categories are — exclusions, integration, best-in-class and positive screening, impact investing, and sustainable objectives.
Presently, mutual funds can launch only one ESG scheme under the thematic category of equity schemes.
“Gone are the days when ESG was merely a Western preference, as Indian Financial markets are now making a strong impact on the global stage,” Akshat Garg, Senior Manager (Research) Choice Broking, said. To ensure the essence of ESG is retained, Sebi has outlined that a minimum of 80 per cent of the total assets under management (AUM) in these schemes must be invested in equity and equity-related instruments, aligned with the respective strategy. Just as multiple categories in equity mutual funds cater to clients with unique preferences, the availability of various ESG schemes offers investors the opportunity to express their specific environmental, social and governance considerations confidently, he added.
“This initiative will encourage MFs and provide investors with responsible investment avenues,” Ashwini Kumar, Head – Market Data, Icra Analytics Ltd, said.
Also, the new guidelines mandate higher disclosure, compliance with independent assurance, ESG audits and fund manager commentary and case studies, he added.
According to the regulator, these measures will facilitate green financing with a thrust on enhanced disclosures and mitigation of greenwashing.
Going by Sebi’s circular, it has mandated ESG schemes to invest at least 65 per cent of AUM in listed entities, where assurance on the BRSR (Business Responsibility and Sustainability Reporting) Core is undertaken. The balance AUM of the scheme can be invested in companies having BRSR disclosures.
In addition, the Securities and Exchange Board of India (Sebi) has put in place a disclosure framework for the ESG scheme.
