SEBI permits multiple ESG mutual fund schemes with mandatory BRSR threshold

SEBI amended Mutual Funds Regulations to permit multiple ESG schemes with diverse strategies and mandated that ESG schemes invest at least 65% of assets in companies with BRSR disclosures. The framework tightens disclosure, assurance, and anti-greenwashing requirements directly governing Indian asset managers and ESG investors.

SEBI amended the SEBI (Mutual Funds) Regulations to permit Mutual Funds to launch multiple ESG schemes with diverse strategies, having previously limited them to one ESG scheme under the thematic equity category. Permitted strategies include Exclusion, Integration, Best-in-class and Positive Screening, Impact investing, Sustainable objectives, and Transition or transition-related investments. SEBI mandates that ESG schemes invest at least 65% of total assets in companies with comprehensive Business Responsibility and Sustainability Reporting (BRSR) disclosures and assurance on BRSR Core disclosures.

The framework affects Asset Management Companies, ESG fund managers, and ESG investors. The 65% BRSR investment requirement applies from October 01, 2024, and non-compliant schemes must achieve compliance by September 30, 2025. Disclosure requirements include reflecting the ESG strategy in the scheme's name, disclosing ESG scores of securities in monthly portfolio statements, providing rationale for voting decisions on environmental, social, or governance grounds, and an Annual Fund Manager Commentary covering how the ESG strategy was applied.

AMCs must obtain independent reasonable assurance on each ESG scheme's compliance with its stated strategy and objective, provided on a 'comply or explain basis' for FY 2022-23 by December 31, 2023, with assurance disclosure in the annual report thereafter. AMC boards must certify scheme compliance in the annual report. Asset managers should align portfolios with the 65% BRSR threshold ahead of the October 2024 deadline and build disclosure and assurance processes to prevent greenwashing.

Key figure — Compliance deadline: 65% BRSR investment requirement applies from October 01, 2024