SEBI has issued a consultation paper in which it has proposed to introduce five new fund categories under ESG theme. The five new ESG sub categories are exclusions, integration, best-in-class & positive screening, impact investing and sustainable objectives.
|
Sub-categories |
Indicative description in brief |
|
ESG exclusion scheme |
Invests in securities after excluding it basis certain parameters like ESG related activities, business practices or business segments |
|
ESG integration scheme |
Invests in companies after considering ESG related factors to evaluate risk and return of investment along with financial factors |
|
ESG best-in-class & positive screening scheme |
Invests in companies that perform better than peers in terms of ESG parameters |
|
ESG impact investing scheme |
Invests in companies that bring positive, measurable social or environmental impact |
|
ESG sustainable objective scheme |
Invests in companies that are likely to benefit from long-term macro or structural ESG-related trends |
Fund houses will be allowed to launch one scheme under each ESG category.
SEBI said, “Presently, mutual funds can launch only one ESG scheme under thematic category of equity schemes. Considering that AMCs may want to launch multiple diversified ESG schemes under the ESG category, a new category for ESG schemes is proposed to be introduced.”
Further, SEBI has asked AMFI to prescribe standardized criteria for different ESG strategies.
While each scheme category will have to invest at least 80% of the total corpus based on a particular theme, the remaining portion should also be in line with the broader ESG philosophy.
Other proposals
- AMCs to include the name of the ESG strategy in the fund name. For example, XYZ ESG Exclusionary Fund and ABC ESG Best-in-class Fund
- ESG schemes to disclose the name of the ESG rating provider alongside the score disclosures in the monthly portfolio disclosures
- Fund disclosures to have annual fund managers commentary on the application of ESG strategy, annual tracking of ESG rating movements in investee companies and so on
- ESG scheme will invest at least 65% of its AUM in companies with comprehensive BRSR (Business Responsibility and Sustainability Reporting). The remaining investments are to be in companies reporting on BRSR
SEBI has invited public comments/suggestions on the consultation paper by March 06, 2023 in the prescribed format.
Click here for the complete consultation paper.
