SEBI proposes ESG (environmental sustainability and governance) disclosure norms for mutual fund schemes, which will provide transparency to investors and help them make informed decisions.
The disclosure norms are specifically for ESG mutual fund scheme so that it remains true to label.
The disclosure will provide information regarding the type of strategy followed by the mutual fund scheme, regarding the ESG or sustainability characteristics of the mutual fund scheme.
This step will provide the right direction to investors before taking any investment decision as the disclosures furnish adequate information about the ESG related schemes.
Periodical review of the disclosures will ensure that the scheme does not get diverted from the ESG. The proposed disclosures for ESG funds are in the right direction, and the investors have considered it for allocation in their portfolios.
ESG investing is speeding up and is showing no signs of diminishing. Thus, getting these norms into place will be supportive and helpful to the investors. There is a need to create a certain standard or benchmark where the maker of the ESG funds also follows the ESG standards with the mutual funds.
According to the proposal, the ESG mutual fund schemes can invest only in Business Responsibility and Sustainability Report (BRSR) or equivalent projects in the case of overseas markets.
The mandated allocation of funds to ESG securities should be at least 80%, and the remaining 20% should not get much diverted from the main idea of the scheme.
Globally, ESG disclosures are in the spotlight as the regulators want to avoid the threat of greenwashing by increasing ESG disclosures. Greenwashing is a practice where a company sets a false impression about its environmentally free products.
SEBI’s proposed disclosure is a correct decision. ESG space in India is evolving and showing positive signs of growth.
There is a recommendation to propose sustainable finance-related terms that are in line with the global standards. It will help to advance the ESG related schemes.
The disclosures on sustainability schemes will show the characteristics of the ESG funds and address the issue of ‘greenwashing’. It will also enhance transparency, credibility, communication, and instil confidence among investors and encourage them to invest in sustainable projects.
The world is experiencing environmental, climatic and social unrest, because of which there is a massive growth in sustainable investments on a global scale.
In India, there are eight thematic equity schemes relating to ESG with an AUM of 12,085 crores. The ESG ETF has a fund base of 174 crores.
SEBI has suggested that the investments should provide sustainability benefits with good financial returns.
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