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Sebi proposes new norms for MFs’ ESG investments

Sebi proposes new norms for MFs’ ESG investments

26 Oct 2021

Mumbai: The Securities and Exchange Board of India (Sebi) has proposed to revise the investment norms for mutual fund schemes that invest as per the ESG (Environment, Sustainability and Governance) philosophy.

The markets regulator has proposed that from October 1, 2022, asset management companies should only invest in securities with Business Responsibility and Sustainability Report (BRSR) disclosures.

The existing investments in the schemes for which there are no BRSR disclosures would be grandfathered by Sebi until September 30, 2023. In ESG investing, a fund manager picks companies whose operations are considered socially responsible.

Schemes, which invest in overseas securities, could choose any global equivalent of the BRSR specified by the Association of Mutual Funds in India (AMFI), Sebi said in a discussion paper on Tuesday.

Currently, these schemes fall under the thematic sub-category. A minimum of 80% of the total assets of the scheme are mandated to be invested in securities following the ESG theme. Hence, these guidelines would apply only to the portion of investment towards the ESG theme, Sebi said.

Asset management companies should endeavour to have a higher proportion of the assets under the ESG theme and make suitable disclosures, said Sebi said.

Globally, the concept of ESG investments is gaining popularity but there are no universalorms and standards.

Standard-setting bodies like IOSCO (International Organization of Securities Commissions) and FSB (Financial Stability Board) are working towards standardised disclosures for ESG funds.

“While such standards are yet to emerge, in the meanwhile, there is a need to introduce disclosure norms for domestic ESG Mutual Fund schemes considering the increased activity in this area,” Sebi said. “It is understood that these disclosure norms would further evolve and undergo changes based on learnings and experience, both on the domestic and international front.”