Lucknow born Shalini Sharma, who started her career with the National Botanical Research Institute before moving on as Head, Centre for Climate Change, at the Engineering Staff College, Hyderabad is now Director, Krÿstähl. She talks to THE WEEK about sustainable finance, ESG and its importance.
Excerpts from an interview:
Q: What is sustainable finance?
A: Very simply, it entails making investment decisions that consider not only financial returns but also environmental, social and governance (ESG) factors. It centers on upholding ESG standards, particularly in asset management and corporate strategy, which are increasingly demanded by customers, employees, and investors from companies. By facilitating a shift towards responsible growth and by channeling investments into the global movement towards sustainable production and services, sustainable finance plays a pivotal role in reshaping both the economy and society.
Q: What are its benefits?
A: It fosters enduring investments in sustainable economic endeavors and initiatives. Within the environmental realm, it encompasses actions addressing climate change mitigation and adaptation, as well as broader ecological aspects like biodiversity conservation, pollution abatement, and the circular economy. Social aspects encompass matters of fairness, inclusivity, labor dynamics, investment in human capital and communities, and the safeguarding of human rights. Concurrently, the governance of both public and private institutions, encompassing management structures, labour relationships, and executive compensation, assume a pivotal role in guaranteeing the integration of social and environmental considerations in the decision-making framework.
Q: What is ESG?
A: Environmental, Social, and Governance (ESG) regulations encompass a set of regulatory actions crafted to foster sustainable and accountable business practices. Environmental aspects encompass a spectrum of concerns linked to climate change, pollution, resource depletion, waste management, and more. Since, May 2021, SEBI has mandated top 1,000 listed companies (by market capitalisation) to submit their ESG report (BRSR), annually. ESG reports encompass both qualitative and quantitative data concerning three primary areas:
Environmental: Detail the measures, a business undertakes to contribute to environmental well-being.
Social: Highlight the company's initiatives aimed at enhancing people's lives.
Governance: Describe the organisation's proactive stance against corruption and its efforts to ensure long-term sustainability of investments.
Also, ESG based investing involves scrutinising investments according to corporate policies and promoting responsible conduct among companies.
Q: How does it benefit organisations/individuals?
A: For organisations, ESG reporting unveils an organisation's endeavors and data pertaining to environmental, social, and corporate governance aspects. Such a report offers a glimpse into the sustainability and social responsibility encompassing a company's operations and methodologies. Producing an ESG report presents an opportunity for organisations to proactively address these concerns by revealing their initiatives and pinpointing potential risk areas.
For individuals, ESG disclosure report offers transparency and insight into an enterprise's operations for its primary stakeholders, including consumers, investors, and non-governmental organisations (NGOs). Also, the shared objectives encompass the reduction of greenhouse gas emissions for the good for the society, enhanced investment in green technologies and renewable energy, the enhancement of workplace diversity, and the establishment of transparent financial practices.
Q: What is the trend in India and the world’s move towards sustainable finance?
A: Green finance pertains to organised financial endeavours in the shape of products aimed at advancing sustainable development imperatives. While India's green finance sector is still in its early stages, its G20 presidency in 2023 serves as a resolute indication of its dedication to sustainability, as echoed by the motto ‘One Earth, One Family, One Future’. This aligns with the nation’s pledge at the United Nations Climate Change Conference in Glasgow (COP26) to attain net-zero emissions by 2070. Nevertheless, substantial capital influx and a robust regulatory framework are imperative to realise these ambitions.
According to a Climate Policy Initiative report, in the year 2022, Green finance flows in India fell far short of the country’s current needs. In 2019/2020, green finance was INR 309 thousand crores per annum, approximately a fourth of India’s needs. It is however heartening to note that CSR funding in society friendly and green initiatives has grown from Rs 1,805 cr in FY2020 to Rs 2,837 cr in FY2022.
Q: How does ESG serve as a tool for potential investors?
A: ESG offers potential investors insights into a company's comprehensive performance and aiding in capital allocation decisions. The Securities and Exchange Board of India (SEBI) has made ESG disclosures mandatory for the top thousand listed companies as part of its Business Responsibility and Sustainability Reporting (BRSR) initiative. Simultaneously, India’s banking sector is progressing towards the establishment of an ESG framework, integrating climate risk assessment into its risk evaluation strategy. Consequently, the landscape of ESG investing in India has gained significant momentum in recent times, marked by the emergence of numerous ESG funds in the investment market.
Emerging financial tools like green bonds, green credits, carbon market instruments like carbon credits and novel financial entities such as green funds are being established to provide funding for environmentally sustainable projects.
Q: What exactly does Krÿstähl do?
A: Krÿstähl in a one-stop destination to learn and assimilate the maths, science and art of sustainability, to create the music of ecological balance, for future generations to thrive without constraints. We operate in four key areas: Krystahl Academy, for training and capacity building and R&D; ESG advisory and consultancy; unique certifications and guidance for certification; and CSR project implementation.
We enable digital transition for sustainable development, provide ESG advisory services, climate and carbon portfolio management services, implement CSR projects, validate the sustainable investment and enable the green transition of sectors like fashion, films and media through our unique system, GreenX™®.
Q: Why are these important in today's world?
A: We exist with the aim ‘to enable environmental security for next gen’. Sustainable finance, ESG, GreenX™® Certification for least talked about domain like films, fashion, hotels, is important for several compelling reasons, as it addresses critical global challenges and brings about positive outcomes for the environment, society, and the economy.
Some of our services like, ESG advisory, provide assistance for regulatory compliance and resilience to disruptions; validation of sustainable investment on investors’ demand; GreenX™® is for green transition of high impact sectors those are also looking for their reputation and brand enhancement; training and capacity building and R&D is for future-proofing the economy and enable contribution to global goals SDG2030.
With Chandrayaan-3 we are now on the moon, exploring natural resources but are not able to manage the resources on the earth! Nature gave enough to the earth, but due to over-exploitation of natural resources, humanity is facing a crises and investing in exploration of other planets to mine resources. The cost of effective resource management and sustainable development is far lower than the efforts made to destroy other planets. It’s high time to realise the importance of sustainable finance, which is the key for sustainable development on this earth.