Indian capital markets regulator, the Securities and Exchange Board of India (SEBI), has proposed that mutual funds be allowed to introduce five new categories under the ESG (environmental, social, and governance) scheme. Exclusions, integration, best-in-class and positive screening, impact investing, and sustainable objectives should be the five new categories.
Mutual funds can currently launch only one ESG scheme under the thematic category of equity schemes.
Given the possibility of AMCs launching multiple diversified ESG schemes under the ESG category, Sebi has proposed that each asset management company be allowed to launch one ESG scheme under each of the five subcategories.
ESG schemes under the proposed new category should be permitted with a minimum 80 per cent investment of total assets in equity or debt stocks of a particular theme as per the sub-categories. However, the residual portion of the investment should not be diametrically opposed to the scheme’s philosophy.
The regulator has suggested that mutual funds exclude securities based on certain ESG-related activities, business practises, or business segments for the ESG exclusions scheme, and that the ESG integration scheme explicitly consider ESG-related factors that are material to the risk and return of the investment, in addition to traditional financial factors.
To increase transparency, the regulator has proposed requiring AMCs to include the name of the specific ESG strategy in the name of the fund or scheme in question.
The requirement should be made mandatory beginning April 1, 2023, according to Sebi, who requested public feedback on the proposals until March 6.