Why fund managers are wary of new ESG categories
The market regulator, Securities and Exchange Board of India (Sebi), is fast opening up investment avenues. Last month, it issued a circular permitting mutual funds to launch six new categories under the ESG (environmental, social, and governance) theme. The move is aimed at streamlining ESG investing but fund managers have raised several concerns.
To be sure, these funds aim to invest in a basket of securities that score well on the ESG front. Hitherto, asset management companies (AMCs) were permitted to launch only one scheme under the ESG tag.
The six new categories will reflect the different strategies under the ESG theme (see graphic). The first category is ‘exclusion’. Here, fund managers will exclude some securities that are involved in certain undesirable businesses pertaining to coal, tobacco, or alcohol. The second one is ‘integration’, wherein fund managers will consider ESG-related factors alongside traditional financial ones to screen investments. The third category, ‘best-in-class and positive screening’, seeks to invest in companies that perform better than peers on ESG parameters.
The fourth category is ‘impact investing’. Its objective is to generate a positive, measurable social or environmental impact alongside a financial return aspect. The fifth, ‘sustainable objectives’ category, aims to invest in sectors, industries, or companies expected to benefit from long-term macro or structural ESG-related trends. The last, ‘transition’, will invest in companies and issuers that are transitioning towards a more environmentally sustainable business model.
Unanswered Questions
Shamit Chokshi, head, offshore funds investments, who is responsible for the ESG framework at ICICI Prudential AMC, said many ESG fund
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