Capital Market Regulatory Securities and Exchange Board India Securities and Exchange Board of India (SEBI) has proposed to allow mutual funds to introduce five new categories under ESG (Environment, Social and Governance) scheme.
At present, mutual funds can launch only one ESG scheme under the thematic category of equity schemes.
The five new categories should be Exclusion, Integration, Best-in-Class and Positive Screening, Impact Investment and Sustainable Purpose.
Noting that AMCs seek to launch multiple diversified ESG schemes under the ESG category, SEBI has proposed that each asset management company should be permitted to launch one ESG scheme under five subcategories.
“AMCs should endeavor to keep higher proportion of assets under ESG theme and make appropriate disclosures,” Sebi said in its consultation paper.
Under the proposed new category, ESG schemes should be permitted to invest a minimum of 80 per cent of net assets in equity or debt stocks of a particular theme, as per sub-categories. However, the residual portion of the investment should not be diametrically opposite to the philosophy of the scheme.
For ESG exclusion plan, SEBI has suggested that mutual funds should exclude securities based on certain ESG related activities, business practices, or business segments and have an ESG integration plan clearly considering ESG related factors which are important for risk and return. Investment, along with traditional financial factors.
ESG Best-in-class and positive screening schemes should invest in companies that outperform peers on ESG parameters.
ESG impact investing plans should look for a non-financial (real world) impact and evaluate whether that impact is being measured and monitored; and ESG sustainable objectives plans should aim to invest in sectors, industries or companies that are expected to benefit from long-term macro or structural ESG related trends.
In order to promote transparency, the regulator has proposed to make it mandatory for AMCs to include the name of the particular ESG strategy in the name of the respective fund or scheme.
In addition, SEBI has proposed to create a regulatory framework for ESG Rating Providers (ERPs).
As per SEBI, ERP may be permitted to register with the regulator under CRA (Credit Rating Agencies) norms.
The watchdog said the role of ERPs in investment decision-making has become important, but their activities are currently not subject to regulatory or supervisory oversight.
The consultation paper states, “While regulators in some jurisdictions have opted for a voluntary code of conduct for ERPs, SEBI has sought an enforceable regulatory and supervisory framework for ERPs in view of SEBI’s experience with credit rating agencies.” has been proposed.”
Given the nascent nature of ERP and to provide scope for further innovation, SEBI said it has endeavored to follow a principles-based approach while balancing the regulator’s mandate of protecting the interests of investors in the securities market .
In May 2022, the regulator constituted an Advisory Committee on ESG Matters in Securities Markets to deliberate on ESG Disclosures, ESG Investments and ESG Ratings in an integrated manner.
Stakeholders’ comments have been sought on the consultation paper by March 8, 2023.
Recently, SEBI released a consultation paper seeking views from market participants on a proposal for which broking firms and their senior management should be empowered to detect/detect fraud or marker misuse by establishing a robust monitoring and control system and ensuring proper Prevention needs to be accountable. Escalation and reporting mechanism.
(With PTI inputs)
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