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Guest Column

Published on: Oct. 23, 2021, 9:52 p.m.
A new and evolving landscape
  • NSE helps investors identify green finance investment opportunities

By Vikram Limaye. The author is Managing Director & CEO, National Stock Exchange of India Limited

Climate change is “real”, and it needs to be addressed on a regular basis: While we all agree that the “Climate Change” issue has been the most pertinent issue of our time, we ourselves as individuals tend to turn a blind eye to the situation. However, it is hard to ignore the signs of a rapidly deteriorating world, especially when we know that nearly 51 billion tonnes of greenhouse gases are added to the atmosphere every year. From shifting weather patterns that threaten food production, to rising sea levels that increase the risk of catastrophic flooding, the effects of climate change are global in scope and unparalleled in scale.

It goes without saying that climate change has been responsible for rapidly altering the world we live in and indeed has been affecting us more than we think. Slowly and gradually political leaders have taken cognizance of the fact that the threat is for “real”, and one needs to take significant steps to address the concerns. 

Unlike other large emitters, India has not yet set a timeline for attaining carbon neutrality: Nearly 137 countries have committed to carbon neutrality, as tracked by the Energy and Climate Intelligence Unit, and most of the commitments are centred around 2050. Along with 137 countries, companies, cities, and financial institutions, have now set or are considering a target of reducing emissions to net zero by mid-century. While net zero is a critical longer-term goal, steep emissions cuts, especially by the largest greenhouse-gas emitters (US, China, India, and EU) are imperative in the next 5 to 10 years to keep global warming to not more than 1.5 °C and safeguard a liveable climate.

Of the 191 Parties to the Paris agreement, more than 110 Parties have so far submitted a new or updated national action plan: Nationally Determined Contributions (NDCs), as required by the agreement. Their planned combined emissions reductions by 2030 still fall far short of the level of ambition needed to achieve the 1.5 °C goal. Unlike US and China, India has not set a timeline so far but has been working constantly towards the attainment of NDCs. 

All eyes on COP26: As world leaders prepare to meet in Glasgow, UK, in November 2021 for the COP26, all eyes will be on whether India will set a timeline this time around or will it just update its voluntary emissions-control commitments. Lot of climate experts expect the world leaders to bolster the “Paris Rulebook” to obligate countries to set adequate emissions targets, report on their progress transparently, provide finance to developing countries to meet their commitments, as well as operationalise carbon markets. According to reports, COP26 is set to start the five-year process of updating emission reduction ambitions pledged by countries through their NDCs. So far, 77 countries including the US, UK and Canada, have announced net-zero targets.

But not all countries have ambitious targets, and the rulebook fails to take notice of this. Though, there has been mounting pressure from the climate experts on Indian authorities to set up a timeline for attaining net-zero emission target, Indian authorities are of the belief that net zero is not enough to keep the global temperature rise below 1.5 degrees Celsius. According to the environment minister, developed countries need to reduce emissions to provide carbon space to developing countries to exercise their right to grow and eradicate poverty. 

Despite not setting a target, India has made significant progress on greenhouse emissions: India has made considerable progress in its efforts towards decoupling economic growth from greenhouse gas emissions. According to the third Biennial Report submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in February 2021, India’s emission intensity of GDP has reduced by 24 per cent between 2005 and 2016, thereby achieving its voluntary goal to reduce the emission intensity of GDP by 20-25 per cent from 2005 levels, earlier than the target year of 2020. 

Though India has made significant progress on greenhouse emissions, there is still a long way to go and thus, setting a target will only make us more accountable and responsible. Thus, along with setting a longer-term target, we should continue to establish shorter term decarbonisation targets that can increase the possibility of attaining longer term goal on time without hampering our growth targets. We should not change our stance because of diplomatic pressure, rather we should alter our stance by realising the benefits we can reap by setting appropriate targets. 

Due to common belief that the developmental objective of raising our per capita GDP and eradicating poverty would require an increase in energy use, which in turn would entail higher emissions has been the major cause of hesitancy for the Indian authorities to propose an emissions reduction trajectory on such forums. This no longer holds true given the changes in technology make it possible to increase energy use by being dependent on green sources which do not engender emissions. We can aim to meet all our additional energy needs from renewable sources and in due course replace existing fossil fuel use with renewable energy. 

Establishing ourselves as a global leader: With the global status of being the largest democracy in the world, one of the oldest civilisations in the world, soon to be the third or fourth largest economy in the world, this is a great opportunity for India to take leadership of addressing climate issues and start implementing climate actions on the global front. Having myriad relevant resources in place, this indeed provides an opportunity to invent the next set of technologies that will be required to address the issue of climate change. From infrastructure to railways, from mining to oil, almost all sectors are determinedly opting for greener measures to address climate issues. 

Alongside, investors have also started investing in large-scale renewable energy projects that indeed augurs well for the country in generating jobs, while also reducing air pollution, a problem that has plagued the country’s most populous cities. The private sector has already shown willingness to support this transition with many leading companies adopting net zero pledges.

Given the fact that India is highly vulnerable to climatic tragedies such as droughts, flooding and heatwaves and we know the country has faced extreme water shortages and its primary sources of water are in jeopardy, by investing in climate action plan and building infrastructural capabilities to foster a green economy, the country can become a global environmental leader, while also ensuring the future prosperity of its people. 

Role of Exchanges and financial institutions in facilitating a low carbon, climate resilient world: The community of financial institutions is not far behind in acting upon and demonstrating leadership on climate change. Where most financial institutions have started allocating capital and navigating their flows towards low-carbon, climate-resilient activities, a group of other financial institutions are now taking steps to work towards better standards of corporate behaviour, influence policy outcomes and build the data, tools, and transparency imperative for embedding climate change into how the market functions. 

As an exchange, we also aim to encourage investment in climate solutions by providing financial literacy services with guidance, training, and tools for investors. Illustratively, there is a Nifty100 ESG Sector Leaders Index that aims to track the performance of select companies within each sector of the Nifty100 which have scored well on management of ESG risk. By creating such performance benchmarks, we showcase a list of ESG-compliant companies before investors to help them identify available green finance investment opportunities.

The time has come for exchanges and financial institutions across the globe to help investors understand the risks posed by climate change to their portfolios on one hand, and the opportunities of investing in green assets on the other, by providing the requisite resources, expert assistance to negotiate this new and evolving landscape. 

As of 2021, India has the second-largest emerging green bond market after China. Despite the innovations in the field since 2015, the Indian green bond market hasn’t been able to diversify itself much in terms of assets, which remain focused on renewable energy projects. Incentivisation therefore is the key that would shift the yield-oriented investment sentiment prevalent in India to a more environmentally conscious one. 

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