Green Attracts Green In India’s ESG Era

Proponents of sustainable financing are in search of enabling policies, regulations and disclosures to realise its potential in India

Illustration: Anand

Over the last few years, the environmental, social and governance (ESG) movement has picked up pace across the world with its special focus on low-carbon growth, social impact and good governance in the corporate sector. With that, the spotlight is now on sustainable financing, the force fueling that drive.

Today, under sustainable financing, investment decisions are being made considering the ESG factors of a business opportunity, and investors in India, too, are looking for ESG-compliant assets.

Although ESG is a recent phenomenon in India, of late, action has been picking up in the space. “A positive momentum is visible as far as sustainable finance in India is concerned on both the products and policy front. This is just the tip of the iceberg for now,” says Namita Vikas, managing director, auctusESG LLP, a global sustainable finance and ESG advisory firm.  

Touching $19.5 billion in 2021, India’s cumulative green, social and sustainability (GSS) debt volume has gone up considerably. GSS debt totalling $7.5 billion was issued in 2021, according to a report by Climate Bonds Initiative, an international organisation mandated to mobilise global capital for climate action. Similarly, ESG-oriented mutual fund assets in India stood at Rs 130 billion in 10 funds as of December 2021—about a five-fold increase from Rs 27 billion in 2019, as per the Association of Mutual Funds in India. “Impact investing, both venture debt and equity, is also scaling up with several social enterprises receiving capital. In terms of innovative products, the country has seen issuance around blended finance structures, outcome-linked financing and impact bonds, especially products targeting core developmental needs like education and livelihood creation,” adds Vikas.

Besides those needs, successful models for sustainable finance mobilisation include public procurement of LED bulbs to promote energy efficiency in households, reverse bidding mechanism to promote expansion of solar energy capacity and bio-fuel blending for emission reduction, among others.

Experts, however, say that the current volumes are not enough. The Ministry of Finance has estimated that a cumulative investment of approximately $3.5 trillion is required by 2030 to meet India’s nationally determined contributions under the Paris agreement. “Green finance in India is grossly inadequate, considering the ambition expressed in our climate change goals,” says R.R. Rashmi, distinguished fellow, The Energy and Resources Institute, and former special secretary in the Ministry of Environment, Forest and Climate Change.

The Regulation Question  

In the face of the challenges in achieving the country’s climate action targets, the government, policymakers and regulators, such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), have been proactive.

In its recently released discussion paper and results of a survey on climate risk and sustainable finance conducted by its Sustainable Finance Group (SFG) in 2022, the RBI stated its intention to formulate a strategy to mitigate climate risks based on the learnings from global good practices and its interactions with standard-setting bodies.