Let’s pin down the elusive ‘E’ of ESG transition finance

News: Weather events are frequently impacting lives. India has given national commitment to net zero carbon emissions. Therefore, India should focus on Sustainable climate funding initiatives that broadly comprise the ‘E’ of ESG transition finance.

Possible Interventions for transition towards sustainable development in India

In General

The 3 ‘R’: recycle, re-use and reduce are crucial to combat climate challenges effectively.

Sectoral interventions

(1) Heavy industries like iron and steel can help reduce carbon dioxide exhaust by adoption of smaller ‘scrap-based steel process plants’ (recycling) located near urban centres, instead of working on integrated steel plants which are highly polluting in nature.

Further, deep decarbonization steel technologies can be developed on a commercial scale. This requires appropriate technology investments.

(2) Business and corporate social responsibility (CSR) can promote greener technologies as well as afforestation of habitats and revival of lost water bodies across India.

(3) In the power sector, there are possibilities for round-the-clock renewable energy (RTC RE) supply as corporates demand for their sustainable operations. It requires better power storage technologies and energy generators.  Further, power distribution companies (DIS+COMS) can support electric vehicle (EV) technology.

(4) In the construction industry, rain water harvesting (RWH) systems can be mandatory for building plan approvals. It will reverse groundwater depletion and prevent urban flooding.

Efforts Made So Far in Transition Finance

Various forms of renewable power, including utility-scale solar power, have been financed through a pool of bank/financial institution loans, bonds and private equity.

The revamped Business Responsibility and Sustainability Report (BRSR) framework for the listed corporates, and the ESG assessment scores introduced by credit rating agencies, are steps in the right direction.

Some European banks like BNP Paribas have come out with climate analytics and alignment studies which guides for a carbon transition finance roadmap towards net zero.

Recently, interim decarbonization percentage targets were set. It envisions raising the share of finance available to RE in overall power generation capacity, reducing upstream exposure to oil, and increasing the financing share of EVs in the automobile market by 2025.

Way Forward

The government can adopt 3 ‘C’ approach to push the laggards of India Inc, including financiers to fall in line for hastening a green transition. This requires, first coax, then convince and eventually coerce, similar to dismantling of LPG subsidies for well-off users in India.

Indian banks should devise their own specific strategies as most banks haven’t yet framed comprehensive climate funding policies.

Indian corporates and financiers should act upon transition finance before climate action regulations start hitting them hard.

India Inc., financiers and regulatory stakeholders should come up with a workable ‘whole-of-industry investment and financing’ approach to facilitate a sustainable economy, similar to the ‘whole-of-government’ approach.

The policy streamlining is needed for the growth of wind and roof-top solar systems and other renewables.

There is a need for development of robust transition finance mechanisms across various industry segments.

Source: The post is based on an article “Let’s pin down the elusive ‘E’ of ESG transition finance” published in the Live Mint on 16^th June 2022.