Environmental, Social, and Governance (ESG) Framework
One of the moves towards achieving these targets is the introduction of ESG disclosures to make companies look beyond traditional finance-centric models. ESG is a framework used to assess a company’s business practices and management of risks related to environmental, social, and governance criteria. ESG scores help potential investors know about a company’s holistic performance and make decisions on capital allocation. The Securities and Exchange Board of India (SEBI) mandated ESG disclosures for the top listed thousand companies under its Business Responsibility and Sustainability Reporting (BRSR) initiative. India’s banking sector is also moving towards developing an ESG framework while carrying out a credit assessment and including climate risk as part of its risk assessment strategy. As a result, ESG investing in India has been gaining traction in recent years. The investment market has seen the entry of quite some ESG funds over the last few years.Financing green projects
New financial instruments like green bonds, carbon market instruments such as carbon tax, and new financial institutions such as green banks and green funds are being created to finance green projects. So far, green bonds have been the key source of funding for green initiatives in India. Green bonds are the bonds issued by a sovereign entity, inter-governmental groups, or corporates with the aim that the proceeds of the bonds are utilized for environmentally sustainable growth. India is the second largest emerging green bonds market after China in terms of the value of green bond issuance.Yes Bank introduced India’s first infrastructure green bond in 2015. In the union budget for financial 2023, the government announced the plans to issue the first sovereign green bonds. The proceeds of these bonds are earmarked for public sector projects focused on renewable energy, low-carbon transport, waste management, and in general, reducing the carbon intensity of the country. Green initiatives are currently attracting foreign investments that in turn reduce the cost of capital for the companies, however, India still has a long way to go to complete the green transition.
