BackESG funds may have to keep 80% in sustainable companies
The regulator also proposed that the rest 20% assets should not be in stark contrast with the ESG philosophy.
PremiumThe Securities and Exchange Board of India (Sebi) has proposed that environment, social and governance-based funds (ESG funds) should have at least 80% of their total assets in securities following the sustainable theme, since these funds fall under the thematic category. The regulator also proposed that the rest 20% assets should not be in stark contrast with the ESG philosophy.
Earlier in 2017, Sebi had said that sectoral or thematic funds must have at least 80% of investments in specific sectors or themes.
In its consultation paper on introducing disclosure norms for ESG mutual fund schemes released on Tuesday, Sebi also asked the Association of Mutual Funds in India to encourage industry players to develop common sustainable finance-related terms and definitions in line with global standards, given the significant divergence in the terms and definitions related to ESG.
With the increased interest and focus on investments in the ESG space globally, asset management companies (AMCs) have also been launching equity schemes in this space. According to Sebi data, at the end of September, there were eight ESG thematic equity schemes with assets under management (AUM) of ₹12,085 crore. There is one ESG exchange-traded fund (ETF) and one ESG ETF fund of fund (FoF) with AUM of ₹174 crore and ₹144 crore, respectively.
Sebi also 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.
The disclosures are proposed to be mandated for disclosure in the scheme information documents for mutual funds, which launch ESG schemes. The fund houses, which already have ESG schemes, are required to update their scheme information documents with the disclosures.
“The investments should be designed to generate a beneficial ESG/sustainability impact alongside a financial return and the AMC should clearly state the intended ‘real world’ outcome in qualitative terms, especially for strategies related to Integration, Impact Investing and Sustainable Objectives," Sebi said in the paper.
It has also been suggested that the responsible investment policy of AMCs should be revised to contain a clause that from 1 October 2022, AMCs shall only invest in securities which have business responsibility and sustainability report (BRSR) disclosures.
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