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Sebi is in the process of stipulating specific disclosures for the Esg program: Ajay Tyagi

Market regulator Sebi is in the process of setting up information for mutual funds on the subject of ESG (environmental sustainability and governance), its chief Ajay Tyagi said on Friday. In addition, the regulator is examining the disclosure of ESG aspects in the press release of rating agencies, he added.

Speaking at the inauguration of an ESG Center for Research and Innovation at IIM Ahmedabad, Tyagi stressed the need for in-depth research on ESG standards with an emphasis on the development of rating matrices high quality, objective and content specific. “ESG research can go a long way in converting the company’s intangible and amorphous variables into measurable and quantifiable returns, both financial and social,” he said.

The Sebi chief noted that Indian investors were showing increased interest in ESG compliant companies and investment products. In addition, ESG funds are growing rapidly in the Indian mutual fund industry. Asset management companies (AMCs) have launched action programs in the ESG space under the thematic category. AMCs are also launching exchange-traded funds (ETFs) and ETF funds of funds in the ESG space.

As of October 31, 2021, there were 11 ESG-themed mutual fund schemes in India with assets under management of over Rs 13,000 crore. Tyagi said that these programs include information in their program information documents (SIDs) in accordance with other program categories, such as investment objective, asset allocation, investment strategy, investment restrictions and subsequent information.

“However, these disclosures often do not clearly highlight all aspects of ESG investing, including investment strategy, the use of proprietary / third-party ratings in investment decision-making and monitoring. ESG investments. Sebi is in the process of stipulating specific disclosures for ESG programs, “he added. Sebi released the consultation document for the introduction of disclosure standards for ESG MF devices in October, in which he proposed various disclosures in the SID that will ensure that the type of strategy followed by the device, with regard to the sustainability or ESG characteristics deserve the nomenclature of an ESG fund.

The proposal requires plans to invest only in securities subject to a corporate responsibility and sustainability report (BRSR) or the equivalent in the case of foreign securities. A link to the BRSR disclosure or equivalent must be provided for each title. Although the mandatory allocation for ESG-themed securities is at least 80% and the disclosure standards only apply to these securities, the regulator has proposed not to deviate too much from the philosophy of the system for the remaining 20% ​​allocation.

According to Tyagi, the introduction of BRSR and the launch of ESG mutual fund programs have sparked interest in ESG ratings as a means of ESG disclosure by listed issuers to help investors meaningfully integrate ESG into their business. investment decisions. “In this context, Sebi is examining the disclosure of ESG aspects in the rating agencies’ press release,” he added.

He added that ESG ratings have become just as important for unlisted companies. Given the diversity of business models, ecological implications, and cultural nuances that have implications for companies’ relationships with employees, customers, and channel partners, among others, the landscape for ESG research is vast and extended, Tyagi said.

Research should focus on identifying the factors or constituent elements of ESG measurement that are specific to the region, country and sector of the company, their calculation and their relative weight in the overall ESG framework, a- he added. “In line with global trends, Sebi is exploring what regulatory and prudential approaches might be for the ESG rating provider,” said the chairman.

The international forum of securities regulators, the International Organization of Securities Commissions (IOSCO), recently released its report on “ESG Ratings and ESG Data Providers,” in which it calls for oversight of these providers of data. rating. The report recommended that regulators pay more attention to the use of ESG ratings and the activities of ESG rating providers in their jurisdictions. This could help increase confidence in ESG ratings going forward.


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