Investments in green projects will continue thanks to SEBI’s

For MSMEs to embrace green technologies, financial guarantees for green bonds are necessary.

Mumbai, October 29, 2024: In collaboration with the World Trade Center Mumbai and the All India Association of Industries (AIAI), the TERI Expert Group on Financing India’s Long-Term Low Carbon Development Strategies (LT-LCDS) organized a high-level roundtable. Key players from the financial and industrial sectors were present at the event, including representatives from the World Bank, Tata Cleantech Capital Limited, Axis Bank, SEBI, the Reserve Bank of India, and Nippon Steel. In order to overcome the financial obstacles that are essential to facilitating India’s shift to a low-carbon economy, the discussion emphasized the necessity of policy alignment and creative funding methods.

In his speech, SEBI Executive Director Mr. Pramod Rao discussed the steps the market watchdog has done to protect investors and encourage funding for real decarbonization initiatives. “The Business Responsibility and Sustainability Report (BRSR) Core sustainability disclosure standard was introduced by SEBI for the top 150 listed companies in September of this year,” he stated. Third parties evaluate corporate disclosure under BRSR Core in comparison to BRSR, where disclosure is predicated on self-declaration.Mutual funds are required to invest at least 65% of the assets earned through their ESG fund schemes in BRSR Core-compliant businesses. The first nation to regulate ESG rating agencies is India. The nation’s ten to twelve registered ESG rating agencies are required to release three reports that are based on BRSR Core.

Mr. Rao emphasized that SEBI has been implementing these investor assurance procedures in order to maintain the flow of capital into legitimate decarbonization projects and to foster investor trust. “We are witnessing a robust influx of funds from retail investors in recent years, as evidenced by the high monthly inflows into mutual fund SIP schemes, the rise in F&O trading, and the bullish trend in the SME IPO market,” he said. Over the past ten years, the monthly inflow from mutual fund SIP programs has increased from Rs. 23,000 crore to Rs. 65 lakh crore. By fostering investor trust with the aforementioned investor assurance measures, we must maintain this inflow.

“The country has created a market for green bonds since 2017, and we have expanded the eligible list of green projects covered under this bond to include renewable and sustainable energy, sustainable waste management, bio diversity conservation, pollution control and prevention, to name a few,” Mr. Rao said when discussing the ways in which corporate sustainability projects can be funded. Other finance tools like transition bonds, yellow bonds for solar power projects, and blue bonds for water management projects have also been established.

In order to encourage investment in decarbonization projects and match the long-term finance requirements with our Nationally Determined Commitments (NDC) commitments, Mr. Rao outlined three areas of concern.

“Unlike in foreign markets where Indian companies can issue green bonds at a lower cost, there is no greenium or lower cost of capital for green projects in India,” he said. Companies can raise money at a lower cost in international markets thanks to specialized investment funds that are mandated to invest in green projects (or profit from greenium in overseas markets). In India, there is no mandate on insurance companies or long term pension funds to invest in green projects or ESG -linked projects.”

Mr. Rao also brought up the issue of “green washing,” in which debtors raise money by deceiving investors about the project’s environmental sustainability or ESG credentials. “The growing prevalence of ‘green washing’ results in ‘green hushing,’ where even legitimate borrowers decide to underreport the project’s green credentials out of fear of ‘green washing’ accusations,” he noted.

“Indian MSMEs require Rs. 17,000 crore to invest in energy-saving technologies and Rs. 72,000 crore to invest in rooftop solar power,” stressed Dr. Vijay Kalantri, Chairman of the World Trade Center in Mumbai, Board Director of the World Trade Centers Association in New York, and President of AIAI. By setting aside specific funds for the MSME sector’s energy transformation, the government and banking institutions can help MSMEs close this funding gap. For loans for green energy projects, MSMEs also require interest subsidies.

“Indian MSMEs are unable to raise green bonds from the foreign market due to poor credit rating,” Dr. Kalantri added. For MSMEs to be able to issue green bonds at competitive interest rates, the government must assist them with credit improvement and credit guarantees.

The Distinguished Fellow at TERI, Mr. R R Rashmi, recommended that MSMEs use low-cost strategies to cut carbon emissions. These low-cost strategies include electrification (using electric machinery and cars that run on electricity instead of gasoline or diesel), the adoption of circular economy principles, and the deployment of energy-efficient technologies and practices.

Mr. Rashmi added, “As part of its Low Emission Development Strategy, the Government of India is creating a sectoral energy transition roadmap. In particular, the government is attempting to implement energy intensity reduction goals for around nine industries that fall within the purview of the Energy Conservation Act. The establishment of an active carbon trading market in the nation and indirect carbon pricing would be made possible by the introduction of these targets.

Mr. Mahesh Date, Vice President of the Ichaalkaranji Engineering Association and Secretary of the Indian Institute of Foundrymen, Western Region, discussed his thoughts on Kolhapur’s foundry industry’s adoption of green technologies. In order to reduce sand waste and encourage effective sand use in foundry units, Kolhapur Foundry has successfully established a sand recycling plant, he reported. Such environmentally friendly MSME sector projects require government support. MSME units may get capital subsidies or viability gap assistance from the federal and state governments for energy saving initiatives, waste recycling, the establishment of common facility centers, and effluent treatment facilities.

The Mahratta Chamber of Commerce, Industries & Agriculture’s former head of the sustainability desk, Mr. Chetankumar Sangole, proposed four cooperative strategies to close the MSME sector’s funding gap for green technology adoption. Establishing special purpose vehicles and industry-government joint ventures are two strategies to pool investible money for MSMEs’ sustainable projects, he said. The implementation of a cluster-based financing strategy, a supply chain-linked market model, and a regulatory and policy package are the other three synergistic approaches. The government may implement green taxonomy, green public procurement standards, priority sector lending for green projects, ESG-linked financing by banks and NBFCs, digitization, decarbonization targets, and compliance monitoring as part of the regulatory and policy package.

According to a senior State Bank of India spokesman, the bank has obtained a Euro 700 million line of credit from international organizations like the World Bank to finance climate mitigation initiatives including compressed biogas, rooftop solar power, biogas, city gas distribution, and so forth. In order to clarify the categorization of bank investments or assets according to their influence on environmental sustainability, the representative recommended that the government implement a green taxonomy. He said, ”In the absence of green taxonomy, we are going by the adhoc taxonomy introduced by the RBI for classification of our investments and assets.”

The roundtable discussed ways to support the transition and sustainable industrial growth, with an emphasis on decarbonizing the supply chain and challenging industries like cement and steel. In order to achieve India’s 2070 net-zero emissions objective, which was declared at COP26 in Glasgow, participants underlined the necessity of coordinating the country’s economic activity with climate-positive measures. The deliberations reflected on the need for multilateral support, innovative technologies, and tailored financing models to meet the evolving challenges of low-carbon development.

Because of its capacity to provide flexibility, innovation, and local economic stimulation, the Micro, Small, and Medium Enterprises (MSME) sector was emphasized during the discussions as being essential to supply chains spanning several economic sectors. The panelists emphasized how crucial it is to direct green money toward MSMEs in order to encourage their adoption of automated systems and energy-efficient technologies. In order to encourage sustainable operations, they also emphasized the necessity of cluster-level interventions and regulatory incentives.

The need for significant investment and innovation in industries like steel and cement was brought to light at the session on “Perspectives by Expert Group Members: Call-to-Action on Financing Hard-to-Abate Sector Decarbonization.” In order to create a sustainable market for low-carbon products, participants underlined the importance of legal frameworks, demonstration initiatives, and allocated funding.

Expert group members emphasized the necessity of cooperation, regulatory support, and focused investments to promote decarbonization across value chains during the “Call-to-Action on Financing Supply Chain Transitions” session.

In anticipation of COP29 in Baku, the discussion closed with important lessons learned and initiatives for the future. The importance of cross-sector coordination in promoting climate action, assisting MSMEs, and easing the transformation of industries that are difficult to combat was reiterated by the participants.

The TERI Expert Group will keep working to develop practical solutions to meet India’s funding needs for sustainable growth using the information acquired at this roundtable.

Speaking during the Roundtable of Expert Group on Financing India’s Long-Term Low Carbon Development Strategies at WTC Mumbai was Dr. Vijay Kalantri, Chairman of the World Trade Center in Mumbai, Board Director of the World Trade Centers Association in New York, and President of AIAI. The picture also features additional dignitaries, including Mr. R R Rashmi, Distinguished Fellow, TERI.

Speaking at the Roundtable of Expert Group on Financing India’s Long-Term Low Carbon Development Strategies at WTC Mumbai was Mr. Pramod Rao, Executive Director, SEBI. The picture also features additional luminaries, including Mr. R R Rashmi, Distinguished Fellow, TERI, Dr. Vijay Kalantri, Chairman, WTC Mumbai, and President, All India Association of Industries, as well as Mr. Arupendra Nath Mullick, Vice President, TERI.