Mumbai – SEBI rules tie ESG mutual funds to the assurance regime in a way few retail investors notice, and it is the most consequential feature of the category.
Under the framework SEBI set out for ESG schemes, a fund must invest at least 80 per cent of assets under management in equity and equity-related instruments. That much is unremarkable for an equity scheme. The second condition is the one that bites.
The 65 per cent rule
At least 65 per cent of assets under management must sit in companies that report comprehensive Business Responsibility and Sustainability Report disclosures and provide assurance on their BRSR Core numbers.
This converts an investment mandate into a disclosure mandate. An Indian ESG fund cannot build a portfolio from companies that simply describe themselves well. It must hold companies whose environmental and social numbers have been checked by somebody outside the company.
It also explains why the investable universe has been narrow. As the assurance cohort widens toward the top 1,000 listed companies, that universe expands mechanically, without any fund manager changing their view.
Disclosure obligations on the manager
Asset management companies carry duties of their own. The ESG focus must be stated in the scheme information document. Engagements undertaken with investee companies must be disclosed. Managers must publish the votes they cast on investee resolutions, and provide a fund manager commentary alongside the engagement disclosures.
Voting disclosure is the underused one. It is the only public record showing whether a fund marketing itself on governance actually voted against management on a governance question, or abstained.
A new rulebook took effect this year
SEBI notified the Securities and Exchange Board of India (Mutual Funds) Regulations, 2026, effective from 1 April 2026, replacing the earlier framework with a principle-based regime. Managers are working through what that means for scheme categorisation and disclosure in practice.
What an investor should ask
- What share of the portfolio sits in assured BRSR Core reporters, above the 65 per cent floor?
- How did the fund vote on contested resolutions at its largest holdings?
- What engagement did it undertake, and what changed as a result?
All three answers are public. Very few investors go and read them.
Source: SEBI circular establishing a new category of mutual fund schemes for ESG investing and related disclosures, and the SEBI (Mutual Funds) Regulations, 2026.
