SEBI Boosts Sustainable Finance with Six New ESG Categories

SEBI Boosts Sustainable Finance with Six New ESG Categories

Sebi issued a circular with new guidelines to boost green finance recently.

The Securities Exchange Board of India requires ESG plans to invest at least 80% of their assets in equities and equity-related instruments of their strategy.

The circular specifies that asset management schemes distinguish mutual fund schemes by asset allocation and investment strategy.

The capital markets regulator has created a subcategory for ESG equity schemes within the thematic category.

ESG schemes will now be launched with one of these strategies:

  1. Exclusion: ESG-related securities. The plan should identify the exclusion—adverse impact, dispute, faith. The approach should state the exclusion threshold and cite any law/regulation/third-party standard/framework used to establish or evaluate the criterion.
  2. Integration: This category will evaluate schemes that explicitly consider ESG variables that affect investment risk and return alongside standard financial factors.
  3. Best in class and positive screening: These schemes invest in firms and issuers that outperform peers on ESG parameters. Disclose metrics details.
  4. Impact investing: These schemes should generate a beneficial, demonstrable social or environmental impact alongside a financial return and how the fund management will achieve the impact aim.
  5. Sustainable objectives: These funds invest in sectors, industries, or firms projected to profit from long-term macro or structural ESG developments. Fund houses should explain the concentrated purpose and why.
  6. Transition or transition-related investments: These funds invest in environmental and just transition firms and issuers.
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