Aligning ESG Goals to National Sustainability Commitments
India, in a strong cross-regional joint statement on behalf of 10 nations including China, asserted that developing countries need to be given an additional time frame beyond 2050 to reach net-zero emissions due to their goals of poverty eradication and development. With this mindset, developed nations should have a net-negative by the middle of the century and vacate the carbon space for developing countries.
The Intergovernmental Panel on Climate Change’s latest report recognizes that although global tracked climate finance shows an upward trend, current global financial flows for adaptation—including from public and private finance sources—are insufficient and constrain the implementation of adaptation options, especially in developing countries. The impact of climate change will be increasingly felt across all economies, upending businesses and social structures in alarming ways. This begets the need for collaboration between the government and private players to align mutually benefiting goals and establish long-term sustainable pathways to achieve national climate change targets.
Government of India’s Commitment to Address Climate Change
In a significant move from a responsible emerging economy, India’s announcement of a net-zero target is a signal of climate action. Indian targets have been welcomed by many developed nations on the global stage in line with their commitments while balancing an aspirational level playing field.
India’s nationally determined commitments submitted to the United Nations have put forth a target of creating an additional carbon sink of 2.5 to 3 billion tons of CO2 equivalent by increasing forest and tree coverage by 2030. India also committed to reducing the emissions intensity of its GDP by 45 percent by 2030 – up from the 2005 level of 30 percent. As per the commitment by 2030, India will take its non-fossil energy capacity to 500 GW, meeting 50 percent of its energy requirements from renewable energy. By the year 2070, India will achieve the target of net-zero.
According to a report by the State Bank of India, the Indian economy is projected to be the fastest growing among major economies in the financial year 2022-23, with 13.5% in its gross domestic product quarter. Prime Minister Modi’s vision for India to be ‘Atmanirbhar’ or self-reliant as a nation is based on the goal to ‘Make in India, Make for the World’. This ambition for the Indian economy requires simultaneous measures to address the parallelly increasing climate change challenges to ensure sustainable growth for the country, people, and industry. Ahead of the 2022 United Nations Climate Change Conference, the federal government at the Centre is reaching out to states to encourage them to devise stronger climate action plans to ensure a coordinated approach from the government.
Interrelation of Climate change and Economic & Financial Resilience
To translate these aspirational targets into reality, laying out an integrated and holistic pathway is the necessary next step. Transformation of the economy across sectors toward a resilient future requires policy direction and industry commitment.
Businesses through their actions, resources, R&D and innovation capacity, access and reach to stakeholders are vital to address the issues across the elements along the value chain. With the growing customer as well as investor focus on sustainability and Environment, Social, and Governance (ESG) disclosure requirements, companies have already started embracing the principles of sustainable growth. Globally, more investors are using ESG considerations in their investment process in a more integrated and systematic way, with climate change being one of the most important ESG issues. As mentioned in Morningstar’s annual report, net inflows to sustainable funds increased rapidly sequentially in 2020, with the fourth quarter of 2020 net inflows recording an increase of 150 percent against the fourth quarter of 2019.
While there is a direct positive relationship between ESG ratings with a company’s financial performance, ESG also works beyond financial parameters. The adoption of these principles enhances corporate growth and resilience by boosting the topline through efficient resource use and helping raise capital at lower costs and enhancing the company’s public image.
Today, Europe leads in terms of growth in sustainable assets, followed by the United States. However, it will not be long before India, too, follows suit especially given the responsibility of sustainable and resilient growth. In India, over 50 companies have committed to science-based targets, and half with net zero targets validated.
Government of India’s Policy Nudge towards Sustainable Growth
In the backdrop of the International Sustainability Standards Board to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information, India worked on its own version of an ESG framework. In 2021, India’s market regulator Securities and Exchange Board of India (SEBI) revised sustainability disclosure norms with the new Business Responsibility and Sustainability Report (BRSR). BRSR will apply from the 2022-23 fiscal year to the top 1,000 listed companies.
The Reserve Bank of India has also joined the global Network for Greening the Financial System in April 2021 to learn about and contribute to global efforts on green finance. With this, the central banks would seek to help in “strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development.”
Understanding the pivotal role of industry to support India’s national and internal commitments, the government of India is nudging systemic and process-driven industry contributions to sustainable growth. India’s stage of economic development is nestled in the window of demographic dividend begetting the need to balance these fundamental issues that become more preeminent and complex for a developing nation. Starting with BRSR, the industry requirements will only increase with time with more expectations from larger companies to have a cascading impact across industries that galvanizes movement across all levels.
With growing global consciousness around climate change as well as sustainable practices, there is an increased reporting and disclosure expectation around the principles of ESG. As companies plan for the future take into account the multi-layered corporate resilience facets that are aligned to the country’s declared national and international commitments for cohesive action as well as sustained growth.