SEBI Update- New category of Mutual Fund schemes for Environmental, Social and Governance (“ESG”) Investing and related disclosures by Mutual Funds.

SEBI has decided to introduce a separate sub-category for ESG (Environmental, Social and Governance) investments under the thematic category of equity schemes. Any scheme under the ESG category can be launched with one of the strategies such as Exclusion, Integration, Best-in-class & Positive Screening, Impact investing, Sustainable objectives, and Transition or transition-related investments.

Presently, mutual funds are permitted to launch only one ESG scheme under the thematic category for equity schemes. In view of the industry representations for allowing multiple schemes with different ESG strategies and considering the increasing need for green financing, Sebi has decided to permit the launch of multiple ESG schemes with different strategies by mutual funds.

Mutual funds should ensure that the schemes launched are clearly distinct in terms of asset allocation, investment strategy etc.

A minimum of 80% of the total assets under management (AUM) of ESG schemes should be invested in equity & equity-related instruments of that particular strategy of the scheme. The remaining portion of the investment should not be in contrast to the strategy of the scheme. Mutual Funds should deploy a higher proportion of the assets towards the scheme’s strategy under the ESG theme and make suitable disclosures.

Presently, the ESG schemes of mutual funds are mandated to invest only in such companies which have comprehensive Business Responsibility and Sustainability Reporting (BRSR) disclosures. Sebi has decided that an ESG scheme should invest at least 65% of its AUM in companies which are reporting on comprehensive BRSR and are also providing assurance on BRSR Core disclosures.

Sebi has also introduced some disclosure requirements for ESG schemes. First, mutual funds should clearly disclose the name of the ESG strategy in the name of the concerned ESG fund/scheme. Mutual funds should disclose security-wise BRSR Core scores along with the BRSR scores in their monthly portfolio statements of ESG schemes, Sebi said. Mutual funds should also disclose the name of the ERPs providing ESG scores for the ESG schemes, along with the ESG scores.

https://www.sebi.gov.in/legal/circulars/jul-2023/new-category-of-mutual-fund-schemes-for-environmental-social-and-governance-esg-investing-and-related-disclosures-by-mutual-funds_74186.html