The Securities and Exchange Board of India (SEBI) has announced new investment and disclosure rules for ESG funds.
Under these regulations, ESG funds must ensure at least 80% of their assets are invested in securities that align with their individual strategies. Moreover, asset managers must provide monthly ESG scores for their holdings.
SEBI also introduced a novel ESG investment sub-category for funds, aiming to let mutual funds present a wider range of ESG schemes to investors. This move represents a shift from the previous rules where mutual funds were allowed to offer only a single ESG scheme under the thematic category.
The latest rules allow asset managers to offer multiple ESG funds under defined strategies including Exclusion, Integration, Best-in-class & Positive Screening, Impact investing, Sustainable objectives, and Transition or transition-related investments.
Furthermore, SEBI has introduced new disclosure requirements for ESG schemes. These include the stipulation that the fund name should clearly include the ESG strategy and that Business Responsibility and Sustainability Report (BRSR) scores should be featured in monthly portfolio statements. The name of the ESG ratings provider must also be disclosed.
Another rule mandates asset managers to offer explanations supporting their voting decisions, including whether the vote was made for ESG reasons.
SEBI released a statement saying that the introduction of these measures is to “facilitate green financing with thrust on enhanced disclosures and mitigation of green washing risk.”
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