Forbes India – Climate change, ESG, SDGs: India’s financial system must align with nation’s climate priorities

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ESG investing in India is growing rapidly and options are available for all categories of investors. Image: Shutterstock

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Since the outbreak of the pandemic in 2020, we have seen the world wake up to environmental issues, social concerns, and the need for transparent governance. Climate change, energy use, pollution control and human rights have gone from mere talking points to real issues while making responsible investment decisions. India, home to over 1.35 billion people, faces formidable environmental and infrastructure challenges that must be addressed to truly realize the ambition of becoming a $ 5,000 billion economy .

To ensure our commitment to the Paris Agreement and the United Nations Sustainable Development Goals (SDGs), we as a progressive nation must view green finance as a key priority. As India’s financial sector evolves, we have a lot to learn from other green finance leaders and to incorporate sustainable mandates into our investment decisions going forward. As a prerequisite, we must design an integrated policy approach and a comprehensive plan that aligns with the country’s financial system while also taking into account environmental risks.

Green finance and ESG go hand in hand

Although nascent, ESG (environment, social and governance) investing in India is growing rapidly and options are available for all categories of investors. From venture capital, private equity and institutional investors to family businesses and high net worth individuals, various ESG funds have sprung up. The growing relevance of ESG factors in India is now reflected even in capital raising efforts with India Inc. issuing around $ 5 billion via ESG bonds so far in 2021, more than in all previous years.

Green finance also took off in 2020, with the tide still strong in 2021. Regulators across Asia have stepped up efforts to promote the growth of green finance for a sustainable future. Compared to 2019, fund flows to ESG investments increased significantly in 2020. Green finance bonds reached an all-time high of $ 544.3 billion in 2020, while ESG fund assets under management in Asia exceeded $ 60 billion at the end of December 2020, more than twice as much as in 2019.

As we are already in the second half of the year, we are seeing optimistic trends for sustainable investing in India which will contribute to the expansion of ESG agendas. China has dominated the world by signing a large number of deals during this period, accounting for 20% of total sustainable deal-making activity, followed by the United States at 9%, and India and of Italy at 7%.

A look at green building financing in India

According to the International Green Building Council (IGBC), green buildings consume less water, are more energy efficient, save natural resources, produce less waste and provide a healthier environment for its residents. In the case of India, residential and commercial buildings use over 37% of the country’s electrical energy, and certified green buildings can save up to 20% to 30% energy and 30 to 50%. % water. Hence, the need and scope of green building construction in India is promising.

With 70 percent of the buildings needed by 2030 yet to be built, India is at an inflection point of a construction boom and has the potential to become the world’s largest green building market. Given the size of the market, financing green buildings in the housing, retail, commerce, healthcare and hospitality sectors presents a viable market as well as an opportunity for banks and businesses. financial institutions to support green growth.

However, the number and type of products offered by retail banks in India are currently limited to green home loans or green mortgages, with no data available on the proportion of green home loans to overall mortgage lending. Retail banks should start by incorporating green value into all kinds of construction loans through innovative products and processes that would accelerate the transition to green buildings and give a major boost to the sustainable growth strategy.

Progress in India and the way forward

India is in a race against time to meet its climate goals and greening all finances has become a priority. This requires a coherent approach, concrete efforts and a shared vision among policy makers, regulators and financial sector participants. All this must be done by controlling the socio-economic factors of the country. The way forward is to elevate the dialogue to the highest levels and bring a paradigm shift in the narratives with a strong emphasis on sustainable finance.

As India has made a significant commitment, both in the Paris Agreement and in the SDG agenda, there will be more disclosures on how India Inc.’s corporate goals align with national targets in the near future. Therefore, we need to develop a unified approach around ESG investments, green guidelines, financial products, as well as defining the roles of the private sector, the public sector, bankers and asset managers. This will not only boost action to align the entire financial system with green finance, but will also boost the engine of sustainable growth in the country.

The author is CFO India, Holcim Group and CFO, Ambuja Cements Ltd.


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