How ESG Initiatives are taking shape in India?

Various estimates indicate that India will need tens of trillions of dollars by 2070 to address its climate goals effectively. Up to this point, the funding for these climate initiatives has primarily come from domestic sources, encompassing government budgetary support, market mechanisms, fiscal tools, and policy interventions.

According to the Ministry of New and Renewable Energy, India needs between INR 15,000 crores and INR 20,000 crores of annual foreign direct investment (FDI) specifically for renewable energy projects due to financial limitations in the sector. Gathering such substantial funds necessitates innovative financial strategies that extend beyond traditional funding methods.

Thematic bonds, such as green, social, sustainability, and sustainability-linked bonds are universally recognized as crucial financial instruments for fulfilling the aims of the Nationally Determined Contributions (NDCs) and Sustainable Development Goals (SDGs).

China has stolen a march over others in green financing. In 2014, it formed a green finance task force in collaboration with the United Nations Environment Program (UNEP) and subsequently introduced the world's first green finance policy framework, the "Guidelines for Establishing the Green Financial System." These guidelines established the official definition of green finance and set forth incentives, disclosure requirements and plans for the development of green financial products, along with risk mitigation strategies.

While India has developed its own framework for sovereign green bonds and green deposits, there remains a need for a comprehensive and actionable plan that includes a detailed strategy and policy framework, similar to that of China’s.

Furthermore, Indian banks should provide adequate incentives for green deposits, which currently offer lower interest rates than traditional deposits. Without accompanying tax incentives, depositors may hesitate to opt for them. Moreover, the RBI should consider reducing the cash reserve ratio (CRR) for green deposits to pass on benefits to depositors over time.

Given that this year marks the initial phase of mandatory Business Responsibility and Sustainability Report (BRSR) filings, and considering that global sustainability reporting standards are still in development with numerous lessons yet to be learned, it would be advisable for the SEBI to commission an objective and detailed analysis of the quality of the reports submitted by companies.

A notable shortfall of the BRSR policy is its lack of industry-specific guidelines. For instance, the reporting requirements for high-pollution industries like steel, cement, and chemicals should differ from those applicable to service sectors such as banking and IT. The current BRSR framework offers a unified reporting format which, while promoting transparency, does not adequately address the unique environmental, social, and governance (ESG) challenges and metrics relevant to different industries.

This one-size-fits-all approach can result in superficial compliance rather than meaningful sustainability practices. High-pollution industries, which have significant environmental impacts, should adhere to more stringent and detailed reporting requirements compared to service sectors. This differentiation would ensure that the specific risks and opportunities associated with each industry are properly addressed and reported, enabling better-informed investment decisions and more effective sustainability strategies.

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