ESG-related Obligations for Retail Funds
How does MAS assess if a retail fund is considered "ESG"?
According to MAS (Guidelines),
last revised on 28 July 2022
8 In assessing whether a scheme’s investment portfolio and/or strategy is focused on ESG in a substantial manner, MAS would consider factors including whether the scheme’s net asset value is primarily invested in accordance with the scheme’s investment strategy. As a guide, a scheme is normally considered to be “primarily invested” if at least two-thirds5 of the scheme’s net asset value is invested in accordance with the scheme’s investment strategy6.
9 MAS also notes that there may be cases where it is neither possible nor practicable for a manager to determine, at the individual asset level, the proportion of a scheme’s net asset value that is invested in accordance with ESG investing approaches, for example, where the scheme adopts a portfolio approach that aims to overweight companies that improve their ESG ratings by a certain quantum over a specified period, with no particular restriction on investing in low ESG rated companies. In such cases, MAS expects the manager to explain in the offering documents how the scheme’s investments are substantially ESG-focused.
5 The two-thirds threshold is generally adopted by the industry in determining whether a scheme is primarily invested based on a particular investment strategy.
6 The scheme should also have regard to the general principle that its investee companies should follow good governance practices and that they do not compromise the environmental or social objectives of the scheme. Accordingly, the offering documents should also include a description of how the remainder of up to onethird of the scheme’s net asset value would be invested.