Securities and Exchange Board of India’s circular of 6 October 2017 upended the Indian mutual fund industry. This circular, on the ‘Categorization and Rationalization of Mutual Fund Schemes’ was aimed at bringing in uniformity in the labelling of various schemes. Since these guidelines have taken effect, investing in large cap scheme means putting money in a fund that has over 80% invested in the equity of the 100 largest companies by market capitalization. Equivalent definitions extend across all categories.
Much like SEBIs rules altered the Indian mutual fund industry, European funds are getting a makeover as the European Union (EUs) Sustainable Finance and Disclosure Regulations (SFDR) and the accompanying regulations, that have taken effect from 10 March 2021.
ESG or sustainable investment has grown exponentially in recent times. Depending on the data source you turn to, between US$ 30-50 trillion is now invested in ESG labelled funds, with Europe accounting for the largest share. As disproportionately more money is flowing to such funds, many have misleadingly labelling themselves as green to attract more investors.
In a manner analogous to SEBIs rules above, EU has rolled out regulations aimed at disciplining this end of the market - or to use the industries jargon on it, prevent greenwashing.
Read our blog Europe’s fund managers get a green makeover by clicking this link