Outflows from the ESG funds continued for the second year in a row with the June quarter registering an outflow of ₹590 crore against an outflow of ₹470 crore in the March quarter, due to profit-booking.

Year-to-date there has been an outflow of ₹1,060 crore against outflow of ₹1,020 crore last year. This is in contrast to the inflows of ₹1.83 lakh crore in overall mutual fund industry in the same period.

With a lack of new fund launches in the last two years and steady outflow, the assets under management under ESG schemes have stagnated between ₹10,000 crore and ₹12,000 crore, according to the Morningstar India report released on Wednesday.

As of June-end, asset of ESG funds at ₹11,040 crore is up by just 2 per cent year-on-year. While sustainable funds witnessed an outflow of ₹1,930 crore last year, the overall asset has increased marginally due to mark-to-market gain, it said.

Concentrated market

While ESG as a concept for investment is still in its nascent stage with only 11 sustainable funds, the market is also quite concentrated.

The top five sustainable funds of SBI MF, Axis, ICICI Pru, Kotak and Aditya Birla MF account for 87 per cent of overall sustainable fund assets, with an asset of ₹4,750 crore SBI MF accounts for 45 per cent of the overall sustainable assets.

Currently, there are eight actively managed sustainable funds, one passive fund, and two global sustainable feeder funds. Active funds account for 97 per cent of overall sustainable fund assets. The investment in the global sustainable feeder fund has been frozen as SEBI capped overseas investment of MF schemes.

Equity sustainable funds are rated well according to the Morningstar Sustainability Rating, which is a peer-group relative measure of ESG risk. Within their global category (Indian equity), six funds carry a Sustainability Rating of 5 globes, two funds are at 4 globes, and one fund has a rating of 2 globes. About 87 per cent of the overall sustainable funds by assets have 5 globe ratings, said Morningstar report.

Sustainability disclosure

Over the past few years, the SEBI has announced sustainability disclosure norms – the Business Responsibility Sustainability Reporting guidelines – for listed companies.

These guidelines make it mandatory for the top 1,000 listed companies to make sustainability disclosures. In a recent regulation, SEBI has looked to enhance these disclosures by announcing a set of key indicators — BRSR Core — on which companies are expected to provide reasonable assurance.

In addition, to avoid greenwashing, SEBI has also outlined disclosures for sustainable funds along with defined fund categories with specific sustainable approaches such as exclusion, integration, best-in-class and positive screening, impact investing, sustainable objectives and transition or transition-related investments.

Asset managers can offer funds in each of these categories with disclosures around the specific strategies, investing at least 65 per cent of the assets in stocks that make BRSR Core disclosures and disclosures around the underlying portfolio BRSR Core scores.

comment COMMENT NOW