The Securities and Exchange Board of India (SEBI) recently announced new disclosure and investment rules for ESG (Environmental, Social, and Governance) funds, marking a significant step towards enhanced transparency and sustainability in the country’s financial sector.

Under the new rules, ESG funds in India will be required to have at least 80% of their assets invested in securities aligned with their specific strategies. Furthermore, asset managers will be required to provide monthly ESG scores for holdings. This move is expected to facilitate green financing and mitigate the risk of greenwashing, a practice where companies give a false impression of their environmental friendliness.

SEBI has also introduced a new ESG investment sub-category for funds, enabling mutual funds to offer several ESG schemes to investors. Previously, mutual funds could only offer one ESG scheme under the thematic category.

The new rules also mandate that at least 65% of AUM (Assets Under Management) be invested in companies that are reporting on comprehensive Business Responsibility and Sustainability Report (BRSR) guidelines and provide assurance on BRSR disclosures.

In terms of disclosure, the name of the fund should clearly include the ESG strategy, and BRSR scores should be included in monthly portfolio statements, along with the name of the ESG ratings provider. Asset managers for ESG schemes will also be required to disclose their voting on resolutions with rationale supporting their voting decision, including whether the vote was made for ESG reasons.

These changes are undoubtedly good news for the ESG landscape. They not only improve transparency but also ensure that companies are held accountable for their ESG commitments. The use of ESG ratings is beneficial for businesses as it helps investors make informed decisions based on a company’s ESG performance. This, in turn, encourages companies to adopt sustainable practices and contribute positively to social and environmental issues.

The future of ESG in India and globally seems promising with these new rules. They will likely lead to an increase in the number of ESG funds and a greater emphasis on sustainable investing. However, the effectiveness of these rules will depend on their implementation and the willingness of companies to adhere to them.

In conclusion, SEBI’s new rules are a significant step towards a more sustainable and transparent financial sector in India. They highlight the growing importance of ESG ratings in business and investment decisions, reinforcing the idea that sustainability and profitability can go hand in hand.