Markets regulator Sebi on Thursday issued a circular allowing asset management companies to introduce six new strategies under the ESG category. Present norms allow MFs to launch only one ESG scheme, which comes under the thematic segment.
The new strategies are — exclusions, integration, best-in-class and positive screening, impact investing, sustainable objectives, and transition or transition-related investments.
It has mandated at least 80% of the total AUM of ESG schemes to be invested in equity and equity-related instruments of that particular strategy.
The remainder shall not be in contrast to the strategy of the scheme. It added that MFs have to deploy a higher proportion of the assets towards the scheme’s strategy under the ESG theme and make suitable disclosures.
The provision of a new category for ESG schemes will be applicable with immediate effect. MFs shall clearly disclose the name of ESG strategy in the name of the ESG fund/scheme concerned.
Additionally, MFs have been directed to make disclosures in the monthly portfolio statements of ESG schemes — such as security-wise BRSR core scores, name of the ESG rating providers providing ESG scores, and the ESG scores.
Sebi has mandated ESG schemes to invest at least 65% of AUM in listed entities, where assurance on the BRSR (business responsibility and sustainability reporting) core is undertaken. The balance AUM of the scheme may be invested in companies having BRSR disclosures. This requirement will be applicable from October 1, 2024.
Present norms require MFs to cast votes in resolutions of their investee firms and make disclosures of the votes cast on their websites every quarter, along with the rationale to back their vote.
To enhance transparency, AMCs shall — from FY25 onwards — categorically disclose whether the resolution has been supported owing to any environmental, social or governance reasons. This disclosure may be made at the MF level.
However, in instances wherein the voting approach for ESG and non-ESG schemes is not same, the details and rationale for votes cast on behalf of ESG schemes and non-ESG schemes shall be disclosed separately.