India’s ESG Landscape: A Sustainable Revolution

The link between robust regulations and a burgeoning ESG landscape in India signals a transformative journey. From pivotal initiatives in sustainable agriculture, renewable energy solutions and logistics transformation to the progressive strides in green finance, India’s multifaceted ESG evolution beckons exploration and unveils a blueprint for sustainable development.

India has long had many laws and regulations regarding environmental, social and governance issues and laws concerning the payment of minimum wage, bonuses, gratuity, welfare activities, health and safety, etc. While these laws provided the necessary safeguards, they contained only fragments of the ESG regulations found in other parts of the world.

The first ESG initiative was in 2012, when the Securities and Exchange Board of India (SEBI) made it mandatory for the top 100 listed companies by market capitalisation to file a Business Responsibility Report (BRR) capturing their non-financial performance across ESG factors. In May 2021, it replaced the BRR with a new Business Responsibility and Sustainability Report (BRSR), to take effect as of the 2022–2023 financial year.

At the United Nations Climate Summit in Glasgow in 2021 (COP26), India announced that it would achieve net zero by 2070. This was followed by a pledge to reduce the emissions intensity of its GDP by 45% by 2030, achieve 450 gigawatts of cumulative electric power installed capacity from non-fossil fuel–based energy resources, and create a sink of 2.5 billion to 3 billion tons of carbon dioxide equivalent through additional forest cover.

Here are the key catalysts propelling India’s ESG evolution.

Sustainable Agriculture

India is predominantly an agrarian economy and is self-sufficient in areas such as rice, wheat, sugar and animal proteins. However, as the world’s third-largest energy consumer, importing almost 85% of its crude oil, Indian agriculture can help tackle its most considerable energy supply and emissions challenges. The Ministry of Environment, Forest and Climate Change has proposed a Green Credit Program (GCP), a domestic voluntary market mechanism to create a market-based system that provides incentives through Green Credits to individuals, organisations and sectors actively engaged in activities that positively impact the environment. It includes provisions for accredited Green Credit Verifiers, registered entities, a dedicated registry and third-party certifiers. Accredited entities will be responsible for independently verifying Green Credit activities, while registered entities will be eligible for the generation and issuance of Green Credits. A Steering Committee will manage the programme, a Trading Platform will facilitate the exchange of Green Credits between participating entities, and a Knowledge and Data Platform will be developed to serve as a valuable resource, collating data from the Green Credit Registry and sharing information on achievements, best practices and capacity-building initiatives.

Indian farmers are also being encouraged to employ new techniques and better agronomy practices to earn Green Credits, e.g., enhanced rock weathering (ERW) to improve soil health, enhance crop productivity and promote long-term carbon sequestration; precision agriculture techniques such as satellite imagery, drones and sensors to monitor soil moisture, nutrient levels and crop health; and sustainable agroforestry involving the integration of trees and shrubs with agricultural crops or livestock systems to provide improved soil fertility, enhanced biodiversity and increased resilience to climate change.

Renewable Energy Solutions

India is the world’s third-largest producer of renewable energy (RE), with 42% of installed capacity sourced from clean and sustainable options. Though 35% of the total carbon emissions come from coal-based thermal power plants, this share has been declining, driven by exponential capacity growth in RE and its cost competitiveness. In 2021, India had the world’s fifth-highest global solar-power capacity and fourth-largest global solar and wind capacity, with government initiatives such as holding reverse auctions, creating solar parks, de-risking evacuation and offtaking, attracting significant investment. Other ongoing projects include bioethanol as a sustainable aviation fuel, and agricultural waste from bagasse, wheat straw and corn stover as sources of RE.

Logistics Transformation

The logistics sector accounts for 14.4% of GDP and is heavily skewed toward road transportation. In 2023, 15 prominent companies came together under the Zero Emission Vehicles Emerging Markets Initiative and the government’s E-FAST (Electric Freight Accelerator for Sustainable Transport) initiative to advance the electrification of the truck market. The objective is to reduce carbon emissions in their fleet operations. These companies will collaborate under a national task force structured according to a national five-pillar strategy for electrifying trucks: aggregating demand, building industrial capacity and required financing instruments, modelling the total cost of ownership, planning for large-scale pilot implementation and supporting policymaking for zero-emission trucks. The demand will be 5,000 electric trucks by 2027 and 7,700 e-trucks by 2030.

Automotive tailpipe emissions account for 7% of total greenhouse gas emissions, and aviation emissions account for 5% of total emissions. India’s 2030 vision of e-mobility translates to 102 million on-road EVs and multiple fiscal and funding measures, such as the reduction of GST on EVs from 12% to 5% and from 18% to 5% for EV chargers. The Faster Adoption and Manufacturing of Hybrid/Electric Vehicles in India Scheme, being implemented by the government, mainly focuses on supporting the electrification of public and shared transportation.

Green Finance

The ESG transition in the banking sector is primarily driven by the Reserve Bank of India (RBI), though implementation progress has been muted. However, the sustainable debt market has been gaining momentum. India is the sixth-largest issuer of green social sustainability and sustainability-linked bonds in the Asia-Pacific region, with almost $18 billion issued as green bonds, mainly by renewable energy companies. On the equity side, there are about 10 ESG equity funds with an AUM of $1.2 billion. They are expected to reach over $270 billion by 2030.

Though it is early days, India’s ESG ecosystem is multiplying, with organisations proactively embracing internationally recognised reporting frameworks such as the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD) and Integrated Reporting (IR). The banking sector has joined the Network for Greening the Financial System (NGFS), thus actively contributing to advancing green finance and playing a vital role in shaping policies to address climate-related risks.

We can see that India’s ambitious agenda sets a precedent, prompting a broader discussion on aligning financial strategies with sustainable practices. The ongoing pursuit of a global consensus continues, inviting stakeholders to deliberate on fostering a resilient and environmentally responsible future.