Alerts & Updates 23rd Jan 2023
SEBI and IFSCA have introduced the following changes:
SEBI has notified significant changes to the LODR Regulations, which include following:
Corporate governance norms of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to be governed by the norms as specified in the SEBI (Real Estate Investment Trust) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014 instead of LODR Regulations with effect from April 1, 2023;
Definition of ‘senior management’ under the LODR Regulations expanded to include functional heads;
Listed entities required to disclose details of material subsidiaries in their annual reports for Annual Reports filed for the financial year 2022-2023 and thereafter.
Changes have been carried out vide the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2023 (LODR Amendment Regulations).
In order to promote consistency, comparability and reliability in disclosures concerning ESG schemes and ensure ESG schemes in IFSC – GIFT City are genuine and true to their name, IFSCA has released a framework requiring ESG schemes to make certain initial and periodic disclosures, significant features of which are as follows:
Initial disclosures in the offer document/placement memorandum such as name of the scheme, investment objective, investment strategy, investment processes, risks and risk management practices, and benchmark;
Periodic disclosures inter alia including compliance with the stated ESG-related investment objectives of the scheme, ESG-related performance, actual proportion of the investable corpus/ assets under management invested as per the stated ESG-related investment objectives, key findings/major observations of internal audits or third-party validation, if any, etc.;
Monitoring and Compliances
The above changes have been analysed in the table below.
| Amendment | Particulars of amendment |
| Governance Norms for REITs and InvITs |
The requirement of a ‘high value debt listed entity’ that is a Real Estate Investment Trust (REIT) or an Infrastructure Investment Trust (InvIT) to comply with regulations 15 to 27 of the LODR Regulations relating to corporate governance has been omitted. Instead, the governance norms as specified under the respective SEBI regulations for REITs and InvITs shall be applicable. This shall come into force with effect from April 1, 2023. |
| Definition of “senior management” expanded |
The definition of “senior management” has been expanded: “Senior management” shall mean the officers and personnel of the listed entity who are members of its core management team, excluding the Board of Directors, and shall also comprise all the members of the management one level below the Chief Executive Officer or Managing Director or Whole Time Director or Manager (including Chief Executive Officer and Manager, in case they are not part of the Board of Directors) and shall specifically include the functional heads, by whatever name called and the Company Secretary and the Chief Financial Officer.” |
| Shareholder approval for appointment of director/ manager for public sector company | A public sector company shall ensure that the approval of the shareholders for appointment or re-appointment of a person on the Board of Directors or as a Manager is taken at the next general meeting of the company. |
| Disclosure of details of material subsidiaries in the annual report |
Listed entities shall be required to additionally disclose details of material subsidiaries of the listed entity including the date and place of incorporation and the name and date of appointment of the statutory auditors of such subsidiaries in the corporate governance section of the annual report of the listed entity. This shall be applicable for annual reports filed for the financial year 2022-23 and thereafter. |
| Previous Regulation | Revised Regulation | |
| Regulation 17(1C) | The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors or as a manager is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier;
… |
The listed entity shall ensure that approval of shareholders for appointment or re-appointment of a person on the Board of Directors or as a manager is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier;
… |
| Proviso to Regulation 17(1C) | … Provided that the appointment or a re-appointment of a person, including as a managing director or a whole-time director or a manager, who was earlier rejected by the shareholders at a general meeting, shall be done only with the prior approval of the shareholders:
… |
…
Provided that a public sector company shall ensure that the approval of the shareholders for appointment or re-appointment of a person on the Board of Directors or as a Manager is taken at the next general meeting: Provided further that the appointment or a re-appointment of a person, including as a managing director or a whole-time director or a manager, who was earlier rejected by the shareholders at a general meeting, shall be done only with the prior approval of the shareholders: … |
| Heading of Regulation 26 | Obligations with respect to employees including senior management, key managerial persons, directors and promoters | Obligations with respect to employees including senior management, key managerial persons key managerial personnel, directors and promoters. |
| Regulation 31A | (3) Reclassification of status of a promoter to public shall be permitted by the stock exchanges only upon satisfaction of the following conditions:
… (b) .. (v) act as a key managerial person in the listed entity .. |
(3) Reclassification of status of a promoter to public shall be permitted by the stock exchanges only upon satisfaction of the following conditions:
… (b) .. (v) act as a key managerial person key managerial personnel in the listed entity .. |
| Schedule III, Part A, Para A | (16) The following events in relation to the corporate insolvency resolution process (CIRP) of a listed corporate debtor under the Insolvency Code:
… (l)… (ix) Names of the new promoters, key managerial persons(s), if any and their past experience in the business or employment. In case where promoters are companies, history of such company and names of natural persons in control;… |
(16) The following events in relation to the corporate insolvency resolution process (CIRP) of a listed corporate debtor under the Insolvency Code:
… (l)… (ix) Names of the new promoters, key managerial person key managerial personnel, if any and their past experience in the business or employment. In case where promoters are companies, history of such company and names of natural persons in control;… |
The above amendments have been made to the LODR Regulations vide the LODR Amendment Regulations dated January 17, 2023 (available here).
With the objective of establishing the GIFT City as a hub for sustainable finance related activities, the International Financial Services Centre Authority (IFSCA) had previously issued regulatory frameworks for including listing of green bonds and social bonds, sustainability reporting by listed entities, sustainability related discourse by FMEs, etc. To further align the disclosures concerning ESG schemes and ensure that ESG schemes in the IFSC are bona fide, IFSCA as issued a framework for disclosures by FMEs that intend to launch ESG schemes.
| Provision | Explanation |
| Applicability | Framework shall apply to FMEs that intend to launch and manage ESG scheme(s). “ESG Schemes” would include such retail schemes, Exchange
Traded Funds (ETFs), restricted schemes and venture capital schemes, which:
|
| Initial Disclosures for ESG Schemes in Offer Document / Placement Memorandum including name of the scheme, investment objectives, investment strategy, benchmarks, etc. |
– Integration: Explicit consideration of ESG related parameters alongside with conventional financial parameters; – Best-in-class and Positive Screening: Investing in companies that perform better than their peers on one or more ESG-related parameters, which would be governed by a standard policy; – Impact Investing: FME seeks to generate a positive and measurable environmental / social impact, where investment would be undertaken in a consistent manner and based on a standard policy; – Engagement: FME invests in such companies where it can effectively engage for improvement in their ESG score / profile and, if the engagement does not result in improvement of ESG score / profile, takes certain pre-identified measures; – Transition: FME seeks to invest in hard-to-abate and other emission-intensive sectors, to upgrade their technology, processes and infrastructure, with the objective of achieving substantial reductions in greenhouse gas emissions.
– Regarding investment decisions which should involve consideration of ESG scores/ ratings/ criteria/ profiles/ index. – Regarding FME’s engagement in investee companies which should include exercise of voting rights in accordance with the ESG related investment objectives of the scheme. – Regarding periodic review of the investments which should include assessment of their performance against the stated ESG related investment objectives of the scheme – Regarding exiting the investments which should involve consideration of ESG scores/ ratings/ criteria/ profiles/ index The strategy and methodology description may further be supplemented by disclosure of various tools deployed for investment decisions like investment universe, details of external service providers for the ESG scores, key performance indicators for the measurement of ESG related performance of the scheme, minimum percentage of investable corpus / assets under management.
|
| Periodic Disclosures for ESG Schemes on a half yearly/ annual basis | Following disclosures should be made to IFSCA and the investors on a half yearly basis for a retail scheme and on an annual basis for other types of schemes:
FMEs managing ESG schemes which are in the nature of retail schemes or ETFs shall publicly disclose the above at a suitable place on their website or by other appropriate means. |
| Passive ETFs or Schemes | ETFs or Schemes tracking an ESG index shall comply with the requirements under this framework to the extent applicable and provide complete details of the chosen index, including its methodology and composition, along with the rationale for choosing the index. |
| Monitoring and Performance Evaluation | The FME should undertake the following, on a half-yearly basis for a retail scheme and on annual basis for other types of schemes:
|
Detailed requirements of the framework as issued by IFSCA have been provided in circular dated January 18, 2023 (available here).
The above amendments have been made to the LODR Regulations vide the LODR Amendment Regulations dated January 17, 2023 (available here).
We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:
Manendra Singh, Associate Partner –ManendraSingh@elp-in.com ;
Tanvi Goyal, Principal Associate –TanviGoyal@elp-in.com;
Aditi Ladha, Associate- AditiLadha@elp-in.com
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