Regulators mandate to promote ESG investment
How seriously are SEBI, RBI, and IRDAI following the (GOI) mandate to promote ESG investment?
Promoting ESG investment has been gaining global importance as investors increasingly consider sustainability factors alongside financial returns. Many countries, including India, have been taking steps to integrate ESG considerations into their financial markets to attract responsible and long-term investments.
Four challenges global investor Faces in ESG Investment
1. Lack of confidence in data received from vendors
2. Lack of data availability
3. Lack of education and/or specialist resource to begin the process
4. Lack of consistent industry standards to consistently measure.
A major (Inside of Companies) challenges global ESG initiation factor Faces
1. Which reporting standards or frameworks to follow?
2. Are currently using ESG disclosures?
3. Who in company has management responsibility for ESG disclosure?
4. Where does primary responsibility for oversight of ESG reside at the board level?
5. Are aware and applying the COSO (Committee of Sponsoring Organizations of the Treadway Commission) framework to your ESG reporting process?
6. Which of the following GHG emissions details is your company currently prepared to disclose?
7. What are the biggest challenges to company in measuring Scope 3 GHG emissions?
8. Is organization taking steps to actively prepare for potential increased ESG regulatory or
other disclosure requirements?
9. Have enhanced internal goal-setting and accountability mechanisms in recent months
to promote preparedness for future disclosure requirements?
10. Have you created any new internal roles or responsibilities in recent months to prepare for
potential increased ESG regulatory or other disclosure requirements?
11. How likely is your company to invest in new technology or tools to enable more timely data and high-quality disclosure in the next 12 months?
The Indian regulator, the Securities and Exchange Board of India (SEBI), had taken some notable steps to encourage ESG practices. For example:
A. ESG reporting: SEBI mandated the top 1,000 listed companies to submit a Business Responsibility Report (BRR) on their ESG performance, which includes information on environmental, social, and governance aspects.
B. Green bonds: SEBI issued guidelines for the issuance of green bonds, encouraging companies to raise funds for environmentally sustainable projects.
C. Stewardship code: SEBI introduced a stewardship code to encourage institutional investors to be more active in their role as responsible shareholders, engaging with companies on ESG matters.
D. Mutual funds and ESG: SEBI allowed mutual funds to launch ESG-themed funds, providing investors with opportunities to invest in companies that meet specific ESG criteria.
E. SEBI’s new introduction of Six New MF Strategies Under ESG for Mutual Fund.
What do items C, D, and E do if A and B are not prepared?
The Indian regulator, the Reserve Bank of India (RBI), had taken some notable steps to encourage ESG practices.
RBI successfully issuer tow Sovereign green bonds (SrGBs)
Current Status: 7.17% Normal GOI Bond mature 08-Jan-2028 dealt at 7.0535% which got more demand (lesser yield) than Sovereign green bonds 7.10% mature 27-Jan-2028, which dealt 7.0702%, two bps higher than normal GOI Bond.
The liquidity of the two Sovereign green bonds is not encouraging. 3 years maturity Sovereign green bonds traded with few crores, and no trad in 10 years Sovereign green bonds.
In view of the condition How does the RBI's assertion that "Sovereign green bonds (SrGBs) will facilitate price discovery for other financial instruments" hold water?
While these initiatives were steps in the right direction, some critics argued that the Indian regulator could have done more to accelerate ESG investment promotion. Implementation challenges, limited awareness, and varying levels of commitment from market participants were among the factors that influenced the pace of progress.
Keep in mind that the situation may have evolved since my last update, and I recommend checking more recent sources for the most up-to-date information on the Indian regulator's commitment to promoting ESG investment.
Logu Dhamdoaran
Author's View.
