Sebi mulls disclosure norms for MF ESG schemes, seeks public comments

Currently, top 1,000 listed firms are required to furnish a 'business responsibility and sustainability report' to the bourses, which has disclosures about ESG initiatives taken

The Securities and Exchange Board of India (Sebi) is considering introducing a disclosure and investment framework for mutual fund (MF) environment, sustainability and governance (ESG) schemes.

In a discussion paper floated on Tuesday, the market regulator has sought public comments on various issues pertaining to ESG investments.

“Whether responsible investment policy should be revised to contain a clause that from October 1, 2022, AMCs shall only invest in securities which have business responsibility and sustainability report (BRSR) disclosures?,” the regulator has asked.

Currently, top 1,000 Indian listed companies are required to furnish a BRSR to the stock exchanges. The BRSR report has disclosures about various initiatives taken by a company on the ESG front. The disclosures have to be made in a format specified by Sebi. Other listed companies can submit the BRSR voluntarily.

Sebi has proposed existing investments in the schemes for which there are no BRSR disclosures would be grandfathered by Sebi till September 30, 2023.

As per the Sebi data, currently there are 8 ESG thematic equity schemes with assets under management of little over Rs 12,000 crore.

Sebi also sought feedback on whether the same set of disclosures can be mandated for ESG schemes under debt category whenever it is allowed.

Globally, the concept of ESG investments is still emerging and there are no universally agreed norms and standards. Bodies like IOSCO and FSB are working towards development of standardised disclosures for funds in the ESG space.

Regulator has also stated that the AMC shall disclose the type of strategy followed by scheme, with regards to ESG characteristics which merit the nomenclature of an ESG  fund.

As per extant regulations, ESG schemes fall under thematic sub-category and so a minimum of 80 per cent of total assets of the scheme shall be invested in securities following ESG theme. Hence, these guidelines would apply only to the portion of investment towards ESG themes.

“However, it is proposed that the residual portion of the investment should not be starkly in contrast to the philosophy of the scheme from the theme. AMC shall endeavour to have a higher proportion of the assets under the ESG theme and make suitable disclosures,” said the Sebi discussion paper.