SEBI has suggested that mutual funds should invest at least 80 per cent of the total ESG asset under management in securities following ESG as a theme.
However, it said that the residual portion of the investment should not be starkly in contrast to the philosophy of the ESG theme and AMCs should endeavour to have a higher proportion of the assets under the ESG theme with suitable disclosures, said the regulator in the consultation paper on disclosure for ESG schemes on Tuesday.
Investors can share their comments on the consultation paper by November 16.
8 ESG schemes
As of September end, there are eight ESG thematic equity schemes with assets under management of ₹12,085 crore. There is one ESG exchange-traded fund and one ESG ETF fund of fund with AUM of ₹174 crore and ₹144 crore, respectively.
The benchmark should be continuously aligned with each of the environmental, governance and social characteristics followed by the scheme and mutual funds will provide a link to the index methodology, it said. AMCs have to monitor and evaluate the investments in terms of Key Performance Indicators, real-world outcomes, active engagement and stewardship activities with investee companies.
Impact Investing
In case of Impact Investing and Sustainable Objective investment strategy, mutual funds should assess, measure and monitor the sustainability-related product’s compliance, impact of its portfolio to the extent applicable to the portfolio’s stated design and sustainability-related performance.
ESG Funds will disclose ESG engagement and stewardship activities on relevant ESG issues at the completion of every financial year, it said. The Board of the AMC should submit a declaration to the Trustees of Mutual Fund that the scheme is following its disclosed strategy and is in compliance with its Responsible Investment Policies on quarterly basis.
AMCs should also augment its resources and processes to take into account the ESG philosophy as a theme for launch and management of schemes in this space.
As there is significant divergence in the terms and definitions related to ESG, SEBI directed AMFI should encourage industry participants to develop common sustainable finance-related terms and definitions in line with global standards.
AMFI should also promote financial and investor education initiatives relating to existing sustainability related financial and investor education initiatives.