The Sebi asked mutual funds to launch any scheme under the ESG category with one of six strategies in its circular dated July 20, 2023. The market watchdog said mutual funds should clearly disclose the name of ESG strategy in the name of the concerned ESG fund/scheme.
The six strategies include: Exclusion, Integration, Best-in-class & Positive Screening, Impact investing, sustainable objectives, and Transition or transition related investments.
The fund houses informed its investors about the change through a notice-cum-addendum.
Two ESG funds from Aditya Birla Sun Life Mutual fund and Axis Mutual Fund specified they will employ integration strategy and renamed the schemes accordingly.
Schemes from ICICI Prudential Mutual Fund and Kotak Mutual Fund will use exclusion strategies.
According to Sebi, minimum 80% of the total assets under management (AUM) of ESG schemes shall be invested in equity and equity related instruments of that particular strategy of the scheme (as per the above specified substrategies). The remaining portion of the investment shall not be in contrast to the strategy of the scheme. Mutual Funds shall endeavour to deploy a higher proportion of the assets towards the scheme’s strategy under the ESG theme and make suitable disclosures, SEBI said.
ESG mutual funds invest in the stocks of companies that are environmentally and socially responsible and follow corporate governance.
There are around eight schemes in the ESG category. Only one scheme has a performance record of five years. SBI Magnum Equity ESG Fund, the oldest scheme in the category, offered 15.71% in a five year horizon.
Around seven schemes have a performance record of three years. Quant ESG Equity Fund, the topper in the category, offered 32.47%. ICICI Prudential ESG Exclusionary Strategy Fund and SBI Magnum Equity ESG Fund gave 15.41% and 15.25% respectively in a three year horizon. Quantum India ESG Equity Fund gave 14.59%. These schemes are benchmarked against NIFTY100 ESG – TRI. The benchmark offered 15.49% in a three year period.
