Capital markets regulator Securities and Exchange Board of India (Sebi) has proposed permitting mutual funds to introduce 5 new classes beneath ESG (environmental, social and governance) scheme.
Presently, mutual funds can launch just one ESG scheme beneath the thematic class of fairness schemes.
The 5 new classes needs to be exclusions, integration, best-in-class and optimistic screening, influence investing and sustainable goals.
Considering that AMCs could wish to launch a number of diversified ESG schemes beneath the ESG class, Sebi has proposed that every asset administration firm needs to be permitted to launch one ESG scheme every beneath the 5 subcategories.
“AMCs ought to endeavour to have a better proportion of the belongings beneath the ESG theme and make appropriate disclosures,” the Sebi said in its consultation paper.
Also Read: (*5*)Whistleblower Protection, Prevention Of Fraud And Market Abuse; Here’s What Sebi Wants From Stock Brokers
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 starkly in contrast to the philosophy of the scheme.
For the ESG exclusions scheme, Sebi has suggested that mutual funds should exclude securities based on certain ESG-related activities, business practices, or business segments and the ESG integration scheme should explicitly consider ESG-related factors that are material to the risk and return of the investment, along with traditional financial factors.
ESG best-in-class and positive screening schemes should invest in companies that perform better than peers in ESG parameters.
ESG impact investing schemes should seek a non-financial (real world) impact and evaluate if that impact is being measured and monitored; and ESG sustainable objectives scheme should aim to invest in sectors, industries, or companies that are expected to benefit from long-term macro or structural ESG related trends.
To boost transparency, the regulator has proposed to mandate the AMCs to include the name of the particular ESG strategy in the name of the concerned fund or scheme.
In addition, Sebi has proposed putting in place a regulatory framework for ESG Rating Providers (ERPs).
According to Sebi, ERPs can be allowed to register with the regulator under the CRA (Credit Rating Agencies) norms.
The watchdog said the role of ERPs has become important in making investment decisions but their activities are not typically subject to regulatory or supervisory at present.
“While regulators in certain jurisdictions have opted for a voluntary code of conduct for ERPs, Sebi proposes an enforceable regulatory and supervisory framework for ERPs, in view of Sebi’s experience with credit rating agencies…,” the session paper stated.
Given the nascent nature of the ERPs and to supply scope for additional innovation, Sebi stated it has tried to observe a principles-based strategy whereas balancing the regulator’s mandate of safety of curiosity of buyers within the securities market.
In May 2022, the regulator had constituted an advisory committee on ESG issues within the securities market, whereby ESG disclosures, ESG investing and ESG scores had been deliberated upon in an built-in method.
Stakeholders’ feedback have been sought on the session paper until March 8, 2023.
Recently, Sebi launched a session paper that sought views from market individuals on a proposal which requires broking companies and their senior administration to be accountable for such detection/ prevention of fraud or marker abuse, by organising sturdy surveillance and management programs, and guaranteeing acceptable escalation and reporting mechanisms.
(With PTI inputs)
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