SEBI defends investor assurance measures to sustain investments in green projects
MSMEs need support through credit guarantee for green bonds to adopt green technologies
Mumbai, October 25, 2024: The TERI Expert Group on Financing India’s Long-Term Low Carbon Development Strategies (LT-LCDS) convened a high-level roundtable, hosted in association with the All India Association of Industries (AIAI) and the World Trade Center Mumbai.
The event brought together key stakeholders from financial and industrial landscape, including officials from the Reserve Bank of India, SEBI, Axis Bank, Tata Cleantech Capital Limited, Nippon Steel, and The World Bank. The dialogue highlighted the need for policy alignment and innovative financing mechanisms to address the financing challenges critical to enabling India’s transition to a low-carbon economy.
In his remarks, Mr. Pramod Rao, Executive Director, SEBI informed about the measures taken by the market regulator to safeguard investors and promote investment in genuine de-carbonisation projects. He said, “SEBI has implemented the sustainability disclosure norm Business Responsibility and Sustainability Report (BRSR) Core on top 150 listed companies from September this year. Under BRSR Core, corporate disclosure is assessed by third parties as against BRSR where disclosure is based on self-declaration. We have mandated mutual funds to invest at least 65% of the capital raised under their ESG fund schemes on companies complying with BRSR Core. India is the first country to regulate ESG rating providers. There are 10-12 registered ESG rating providers in the country and they have to publish three reports based on BRSR Core.”
Mr. Rao pointed out that SEBI has been taking these investor assurance measures to promote investor confidence and to sustain flow of funds into genuine decarbonization projects. He said, “In recent years, we are seeing strong inflow of funds from retail investors as reflected in high monthly inflows into mutual fund SIP schemes, increase in F&O trading and bullish trend in SME IPO market. The monthly inflow from mutual fund SIP schemes has grown from Rs. 23,000 crore/ month 10 years to Rs. 65 lakh crore in recent months. We need to sustain this inflow by building investor confidence through the above investor assurance measures.”
Speaking about the modes of funding corporate sustainability projects, Mr. Rao informed, “The country has created a market for green bonds since 2017 and now 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. We have also introduced other funding instruments such as blue bonds (water management projects), yellow bonds (solar power projects) and transition bonds.”
Mr. Rao highlighted three areas of concern in promoting investment in de-carbonisation projects and aligning the long term funding requirement to our Nationally Determined Commitments (NDC) targets.
He said, “There is no greenium or lower cost of capital for green projects in India, unlike in foreign markets where Indian companies can issue green bonds at a lower cost. In foreign markets, there are dedicated investment funds with mandate to invest in green projects and hence companies are able to raise funds at lower cost (or benefit from greenium in foreign markets). In India, there is no mandate on insurance companies or long term pension funds to invest in green projects or ESG -linked projects.”
Another concern highlighted by Mr. Rao is ‘green washing’, where borrowers raise funds by making false claims to investors about the environment sustainability or ESG credentials of the project. He pointed out, “The increasing instance of ‘green washing’ leads to ‘green hushing’ where even genuine borrowers choose to under-report the green credentials of the project fearing allegations of ‘green washing’”
Dr. Vijay Kalantri, President – All India Association of Industries (AIAI), Chairman – World Trade Center, Mumbai; Board Director, World Trade Centers Association, New York emphasized, “Indian MSMEs need Rs. 17,000 crore to adopt energy saving technologies and Rs. 72,000 crore to invest on rooftop solar power. Government and financial institutions may support MSMEs in addressing this funding gap by earmarking dedicated funds for energy transition of MSME sector. MSMEs also need interest subvention on loans for green energy projects.”
Dr. Kalantri further suggested, “Indian MSMEs are unable to raise green bonds from foreign market due to poor credit rating. We need government support through credit enhancement and credit guarantee to enable MSMEs to raise green bonds at reasonable interest rate.”
Mr. R R Rashmi, Distinguished Fellow, TERI suggested MSMEs to adopt low cost methods to reduce carbon emissions. These low cost methods are: deployment of energy efficient technologies & practices, adoption of circular economy practices and electrification (use of electric machines and vehicles powered by electricity rather than petrol or diesel.”
Mr. Rashmi further informed, “Government of India is preparing sectoral energy transition roadmap as part of its Low Emission Development Strategy. Specifically, government is working on introducing energy intensity reduction targets for around nine sectors covered under Energy Conservation Act. Once these targets are introduced, it will pave the way for indirect carbon pricing and development of active carbon trading market in the country.”
Mr. Mahesh Date, Secretary, Indian Institute of Foundrymen, Western Region and Vice President, Ichaalkaranji Engineering Association shared his views on the adoption of green technologies by foundry industry in Kolhapur. He informed, “Kolhapur Foundry has successfully set up sand recycling plant to minimize wastage of sand and promote efficient use of sand in foundry units. We need government support for such eco-friendly projects of the MSME sector. The central and state Governments may support MSME units with capital subsidy or viability gap funding for effluent treatment plants, establishing common facility centers, waste recycling and energy conservation projects.”
Mr. Chetankumar Sangole, Former Head – Sustainability Desk, Mahratta Chamber of Commerce, Industries & Agriculture suggested four synergistic ways to address financing gap of the MSME sector for adopting green technologies. He said, “One of the ways is to set up special purpose vehicles, with joint venture between industry and government to pool investible capital for sustainable projects of MSMEs. Other three synergistic ways are adoption of a cluster-based financing approach, supply chain linked market model and regulatory and policy package. Under the regulatory and policy package, the government may introduce green taxonomy, green public procurement norms, priority sector lending for green projects, encouraging ESG-linked financing by banks & NBFCs, promoting digitization, introducing targets for de-carbonisation and monitoring compliance.”
A senior representative from State Bank of India informed that the bank has secured Euro 700 million line of credit from multilateral agencies such as World Bank for lending to climate mitigation projects such as rooftop solar power, biogas, city gas distribution, compressed biogas and so on. The representative suggested government to introduce green taxonomy to bring clarity on classification of the bank’s investment or assets on the basis of their impact on environment sustainability. 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 explored strategies to facilitate sustainable industrial growth / the transition, particularly focusing on the decarbonizing of the supply chain and hard-to-abate sectors such as steel and cement. Participants emphasized the need to align India’s economic activities with climate-positive initiatives to support the country’s net-zero emissions target for 2070, announced at COP26 in Glasgow. The deliberations reflected on the need for multilateral support, innovative technologies, and tailored financing models to meet the evolving challenges of low-carbon development.
During the discussions, it was highlighted that the Micro, Small, and Medium Enterprises (MSME) sector plays a crucial role in supply chains across various sectors of an economy due to its ability to offer flexibility, innovation, and local economic stimulation. The participants highlighted the importance of channeling green finance towards MSMEs to adopt energy-efficient technologies and automated systems. They further stressed on the need for regulatory incentives and cluster-level interventions to promote sustainable operations.
The session on ‘Perspectives by Expert Group Members: Call-to-Action on Financing Hard-to-Abate Sector Decarbonization’ highlighted the need for substantial investment and innovation in sectors like steel and cement. Participants emphasized that regulatory frameworks, demonstration programs, and dedicated funds are essential to fostering a viable market for low-carbon products.
In the session, ‘Call-to-Action on Financing Supply Chain Transitions,’ expert group members highlighted the need for collaboration, policy support, and targeted investments to drive decarbonization across value chains.
The roundtable concluded with key takeaways and forward-looking strategies in the run-up to COP29 in Baku. Participants reaffirmed the significance of coordinated efforts across sectors to drive climate action, support MSMEs, and facilitate the transition of hard-to-abate industries.
With the insights gathered at this roundtable, the TERI Expert Group will continue to work toward crafting actionable strategies to address the financing needs for sustainable growth in India.
Dr. Vijay Kalantri, President – All India Association of Industries (AIAI), Chairman – World Trade Center, Mumbai, Board Director – World Trade Centers Association, New York addressing the Roundtable of Expert Group on Financing India’s Long-Term Low Carbon Development Strategies at WTC Mumbai. Also seen in the photograph is Mr. R R Rashmi, Distinguished Fellow, TERI and other dignitaries.