New category of Mutual Fund schemes for Environmental, Social and Governance (ESG) Investing and related disclosures by Mutual Funds
Summary
This circular establishes a new sub-category for Environmental, Social, and Governance (ESG) schemes under the thematic equity category of mutual funds. It mandates specific investment criteria, including minimum allocations to companies with BRSR disclosures and assurance. The document outlines enhanced disclosure requirements regarding scheme names, ESG scores, voting rationales, and annual fund manager commentaries. Paragraphs 4.3.5.5 and 4.3.5.6 mandate the scope of internal ESG audits and the timeline for initial certification by AMC boards. Section 5 cites the legal authority under the SEBI Act and Mutual Funds Regulations for issuing this circular. Annexure A defines six distinct ESG investment strategies: Exclusion, Integration, Best-in-class, Impact investing, Sustainable objectives, and Transition investments.
Text
It has been decided to permit launch of multiple ESG schemes with different strategies by Mutual Funds.
It is decided to introduce a separate sub-category for ESG investments under the thematic category of Equity schemes.
Minimum 80% of the total assets under management (AUM) of ESG schemes shall be invested in equity & equity related instruments of that particular strategy of the scheme.
AMCs shall ensure that the schemes launched by Mutual Funds are clearly distinct in terms of asset allocation, investment strategy etc.
An ESG scheme shall invest at least 65% of its AUM in companies which are reporting on comprehensive BRSR and are also providing assurance on BRSR Core disclosures.
Such ESG schemes which are not in compliance... shall ensure compliance with the requirement by September 30, 2025.
Mutual Funds shall clearly disclose the name of ESG strategy in the name of the concerned ESG fund/scheme.
Mutual Funds shall disclose security wise BRSR Core scores along with the BRSR scores in their monthly portfolio statements.
The AMCs shall categorically disclose whether the resolution has or has not been supported due to any environmental, social or governance reasons.
A ‘Fund Manager Commentary’ along with additional disclosures with respect to engagements undertaken by Mutual Funds for ESG schemes shall be provided in the Annual Report.
The AMCs shall obtain an independent reasonable assurance on an annual basis regarding their ESG scheme’s portfolio being in compliance with the strategy and objective.
The aforementioned internal ESG audit shall inter-alia include verifying the Scheme Information Documents, Stewardship Reporting and Responsible Investment Policy of the ESG Funds and any other relevant document, to ensure that what the statements made in these documents are factual.
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Source: SecMarx — New category of Mutual Fund schemes for Environmental, Social and Governance (ESG) Investing and related disclosures by Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.