Mutual funds can launch five new categories under ESG scheme: Sebi

On Thursday, the Securities and Exchange Board of India (Sebi) approved five new ESG (environmental, social, and governance) categories for mutual funds.

The mutual funds are required to implement a disclosure framework by the capital markets regulator.

Exclusions, integration, best-in-class and positive screening, impact investment, and sustainable objectives are the five new categories.

Among the thematic categories of equity plans, mutual funds are now restricted to a single ESG programme.

The agency said in a circular that these measures will help green financing flourish by placing an emphasis on better transparency and less greenwashing.

According to Sebi, the new classification of ESG programmes will take effect immediately.

Sebi has stated that mutual funds must clearly declare the name of the ESG strategy in the name of the related ESG fund as part of the disclosure requirements for ESG schemes.

As part of their monthly portfolio statements, mutual funds that participate in ESG schemes are required to disclose information such as the BRSR Core scores assigned to individual securities, the names of the ESG Rating Providers (ERPs) used to generate the ESG scores, and the ESG scores themselves.

To comply with Sebi's regulations, ESG schemes must place at least 65% of their AUM in companies that have received assurance on the BRSR Core (Business Responsibility and Sustainability Reporting).

The remaining scheme AUM can be invested in BRSR-disclosing enterprises. As of October 1, 2024, this stipulation must be met.

In the future monthly portfolio statements of ESG schemes, the explanation for any changes to ERP will also be reported.

Also Read : Securities Lending and Borrowing Transactions: Essential Information for the Stock Market

The rule mandates quarterly disclosures of votes cast and the detailed rationale for each vote made by AMCs on their websites.

AMCs will be required to make it very clear whether or not a resolution was supported by an ESG scheme for environmental, social, or governance reasons, increasing the level of openness around the votes cast by these schemes. The new vote disclosure requirements will go into effect on April 1, 2024.