In 2007, the Intergovernmental Panel on Climate Change issued a report that gathered insight linking human activities to global warming. This sparked a discussion about climate change that is still relevant today, primarily for the upcoming years of humans on the planet.
Extreme weather events, including heatwaves, storms, droughts, and floods, are expected to become more common, according to the report.
A 50-centimeter sea-level rise would actually impact 28.6 million people throughout six Indian coastal regions, displacing individuals and resulting in a $6 trillion loss.
A stress test analysis performed by Swiss Re revealed that if no mitigation practices are implemented, approximately 18% of the global gross domestic product will be lost.
Even if the Paris Agreement’s aims for reducing greenhouse gas emissions are met, the world’s GDP will be reduced by 4%.
The economies of developing countries, such as India, are more likely to be impacted by such a potential impact. In such a situation, financial institutions are critical in developing means to protect our economy from the risks posed by climate change.
Two top economic organizations in India, the Securities Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) had already noted the requirement for sustainable finance in the aftermath of extreme weather events.
RBI, the leading regulatory agency for banks in India, regulates the money supply. The SEBI oversees the resource and securities markets in India. Together, they control a financial sector with access to a substantial pool of capital that can be diverted from high-carbon to low-carbon and climate-resilient activities.
These regulators have issued discussion documents for public comment in response to this need.
While the RBI document addresses climate challenges and sustainable climate finance, the SEBI study delves into the ecosystem of environmental, social, and governance (ESG) investments via green and blue bonds.
Blue and green bonds
SEBI addresses debt instruments particularly designed to raise investments in environmentally friendly projects in its article titled “Consultation Paper on Green and Blue Bonds as a Mode of Sustainable Finance.” Sustainable and renewable energy, clean transportation, adaptation to climate change, sustainable waste disposal, and other projects are among them.
When these instruments are used effectively, they can inspire investors to shift their investments away from carbon-intensive portfolios and toward sustainable and green projects.
In 2017, SEBI guidelines identified the concept of “green debt securities,” which was followed by a slew of worldwide sustainable finance ecosystem improvements.
In 2021, Indian businesses raised nearly $7 billion through green bonds and ESG. The amount of money raised in Indian jurisdictions varies greatly from that raised in international or self-governing jurisdictions.
Recognizing that this disparity is caused by the lack of demand for these kinds of bonds and their desirable pricing in overseas markets, SEBI is trying to seek input from stakeholders on potential reforms that could be implemented to increase the sale of such bonds.
SEBI ascribes this disparity to a lack of demand for these kinds of bonds as well as preferable pricing in international markets.
Furthermore, SEBI is presenting blue bonds to endorse the sustainable use of marine resources, enhance livelihood and development, and protect marine biodiversity.
These blue bonds are intended to fund projects, for example, ocean resource mining, climate-resilient fishing, efforts to revitalize degraded coral reefs, as well as the promotion of geoengineering methods.
SEBI is developing a regulatory framework to promote green investments and expand opportunities for greener finance in India. It has requested public feedback on this matter.
In doing so, it hopes to reduce compliance expenses for green bond issuers in order to encourage the issuance of these kinds of instruments in India. Through its consultation document, SEBI acknowledged the need for policy reforms in this sector. It plans to prevent “greenwashing” these bonds.
Greenwashing refers to businesses making false claims to depict their processes and goods as environmentally friendly. According to PLCP, or the Pre-legislative Consultation Policy, which was launched in 2014, each bill must be publicly released and public responses sought before it is enacted.
An effective public consultation helps avoid stakeholder dissatisfaction. It promotes efficacy and transparency in governance mechanisms and offers a channel for creative solutions, which both SEBI and the RBI strive for.
In practice, however, the majority of laws fail to meet the PLCP requirement. Protests against farm legislation, the Transgender Persons Protection Act, and the Right to Information Amendment Act have all highlighted the importance of incorporating citizen feedback.
The push for greener and ESG bonds is trying to come from all directions. The government indicated its readiness to issue sovereign green bonds in the Union Budget 2022.
SEBI is willing to know the public’s opinions and feedback on the pathways they can pursue to accomplish India’s specific objectives of pursuing robust expansion with sustainable development.
Recently, ESG investing, or environmental, social, and governance investing, has steadily and gradually found its way to emerging as an investment strategy in which investors put their funds into companies that want to contribute to a better world. ESG investing entails weighing environmental, social, and governance considerations alongside financial considerations in the investor’s decision-making procedure. These non-financial factors are increasingly being used by investors as part of their assessment process to determine material risks and growth opportunities.
ESG Disclosure by SEBI
ESG metrics were not traditionally included in mandatory financial reporting, but in recent years, several countries have made these disclosures imperative for businesses in their yearly report or in a separate sustainability report. Numerous ESG-conscious businesses are also attempting to make ESG disclosures accessible to the public voluntarily. SEBI required that the leading 100 listed businesses by market capitalization file a Business Responsibility Report in 2012. In 2015, this was extended to the 500 largest listed businesses based on market capitalization. On May 10, 2021, the SEBI launched a new ESG reporting structure called the Business Responsibility and Sustainability Report (BRSR).
