To give a fillip to green financing, capital markets regulator Sebi on Thursday released a set of new rules via a circular.
The directive released by the Securities Exchange Board of India states that a minimum of 80 percent of total assets under management of ESG schemes shall be invested in equity and equity related instruments of that particular strategy of the scheme.
The asset management schemes will ensure that the schemes launched by mutual funds are clearly distinct in terms of asset allocation, investment strategy, states the circular.
The capital markets regulator has introduced a separate sub-category for ESG investments under the thematic category of equity schemes.
From now on, any scheme under the ESG category will be launched with one of the following strategies:
1. Exclusion: Securities based on ESG related activities and business practices or business segments. The strategy should specify the characteristic/ type of exclusion i.e., adverse impact and controversy, faith. The strategy should specify threshold of condition for exclusion, and reference to any law/ regulation/ third-party standard/ framework used in the establishment or evaluation of the criterion.
2. Integration: This category will consider the schemes that explicitly consider ESG related factors that are material to the risk and return of the investment alongside traditional financial factors.
3. Best in class and positive screening: These schemes aim to invest in companies and issuers that perform better than peers on one or more performance metrics related to ESG matters. The details of the metrics should be disclosed.
4. Impact investing: These schemes should seek to generate a positive, measurable social or environmental impact alongside a financial return and how the fund manager intends to achieve the impact objective.
5. Sustainable objectives: These funds aim to invest in sectors, industries or companies that are expected to benefit from long term macro or structural ESG-related trends. The fund houses should describe the focused objective including rationale for focusing on that objective.
6. Transition or transition related investments: These funds aim to invest in companies and issuers that support environmental transition and just transition.
