The head of Sebi pointed out that Indian investors are showing increasing interest in ESG compliance companies

Its CEO, Ajay Tyagi, said on Friday that market regulator Sebi is making disclosures for mutual fund plans with ESG (Environmental Sustainability and Governance) as the theme. He added that in addition, regulators are reviewing credit rating agencies’ disclosures of ESG-related aspects in rating press releases.

At the of the IIM Ahmedabad ESG Research and Innovation Center, Tyagi emphasized the need for in-depth research on ESG specifications, with a focus on developing high-quality, objective, and content-specific rating matrices.

“ESG research can to a large extent transform the intangible and amorphous variables of the business into measurable and quantifiable financial and social returns,” he said. The head of Sebi pointed out that Indian investors are showing increasing interest in companies and investment products that meet ESG standards. In addition, ESG funds are rapidly expanding in the Indian mutual fund industry.

Asset management companies (AMC) have been launching equity plans in the ESG area under thematic categories. AMC also launched funds in exchange-traded funds (ETF) and ETF funds in the ESG field.

As of October 31, 2021, India has 11 mutual fund plans with ESG as the theme, with assets under management exceeding 13,000 crore rupees. Tyagi stated that the disclosures of these plans in its plan information file (SID) are consistent with other plan categories, such as investment objectives, asset allocation, investment strategies, investment restrictions, and subsequent disclosures.

“However, these disclosures often do not clearly show all aspects related to ESG investing, including investment strategy, the use of proprietary/third-party scoring in investment decisions, and monitoring of ESG investments. Sebi is developing disclosures specific to ESG investments. ESG plan,” he added.

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In October, Sebi proposed a consultation document introducing ESG MF program disclosure specifications, which proposed various disclosures in the SID to ensure that the type of strategy the program follows is worthy of naming ESG funds in terms of sustainability or ESG characteristics.

The proposal requires the plan to invest only in securities with business responsibility and sustainability report (BRSR) disclosures or equivalent securities of overseas securities. A link to BRSR disclosure or equivalent information should be provided for each security.

Although the allocation of ESG-themed securities is at least 80%, and the disclosure norms only apply to these securities, the regulator recommends that the allocation of the remaining 20% ​​does not deviate much from the planning concept.

Tyagi said that the introduction of BRSR and the launch of the ESG mutual fund program have aroused interest in ESG ratings. ESG ratings are used as a way for listed issuers to disclose ESG to help investors meaningfully incorporate ESG into their investment decisions.

“In this context, Sebi is reviewing ESG-related disclosures by credit rating agencies in rating press releases,” he added. He further stated that ESG ratings have become equally important for non-listed companies.

Tyagi said that considering the diversity of business models, ecological impacts, and cultural nuances, which will affect the company’s interactions with employees, customers, and channel partners, ESG research has a broad and broad prospect.

He added that research should focus on determining ESG measurement factors or components specific to company regions, countries, and industries, as well as their calculations and relative weights in the overall ESG framework.

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“Based on global trends, Sebi is studying the supervision and supervision methods of ESG rating providers,” the chairman said. The International Forum of Securities Regulators, the International Organization of Securities Regulators (IOSCO), recently released a report on “ESG Ratings and ESG Data Providers”, which calls for supervision of such rating providers.

The report recommends that regulators pay more attention to the use of ESG ratings and the activities of ESG rating providers within their jurisdiction. This may help increase trust in future ESG ratings.

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