In less than two decades, Environmental, Social, and Governance (ESG), which was first coined in 2005, has developed from a corporate social responsibility initiative started by the United Nations (UN) into a global phenomenon with more than US$ 30 trillion in assets under management.
In India, the buzz around ESG picked up pace with ESG reporting that started in 2009. The country, as it stands today in 2022, has every business enterprise trying to commit to ESG goals. In 2021, many Indian companies rushed to adopt the ESG norms, following pressures from investors and regulators. Some of them also began to remodel their businesses to meet India’s net-zero emissions deadline by 2070. The Government of India (GoI) is also taking steps to reduce the carbon footprint by setting a target of generating 50 percent of the energy needs through renewable energy by 2030; it is on its way to achieving those goals and realizing its dream of becoming self-reliant by following the ESG norms.
These purpose-driven enterprises are largely influenced by millennials and next-gen consumers who are making conscious choices, thus forcing companies and investors to stay relevant. This nudge to walk-the-talk accelerated with the COVID-19 pandemic and adhering to the ESG norms is seen as ushering a new era of investment with its triple-bottom-line approach for the age of sustainability – where businesses take into account not only financial returns, but also adhere to environmental and social norms.
Some of the other measures India has taken include a National Hydrogen Energy Mission (NHEM) for generating hydrogen from green power sources. The plan to decarbonise the Indian Railways by 2030 also entails electrification across sectors to reduce dependency on carbon-intensive fuels, incentivizing electric vehicles through various government schemes, promoting a shift from biomass for cooking to LPG, encouraging conversion of all lights to LEDs inside homes and streets and launching energy savings certificates trading scheme.
The new metrics of sustainable investment
According to the International Energy Agency (IEA), the share of renewable energy in the global energy mix is expected to increase from the current 11 percent to over 20 percent by 2040. The major reason behind the worldwide shift to renewable energy is the increase in technological advancements. Hence, more economies are finding ways to produce and store renewable energy to meet the rising energy demand of the planet.
However, with investors, asset owners and developers taking to ESG in a big way, the built environment plays an important role as it emphasises on consensus and making informed decisions to mitigate negative environmental impact. Apart from exploring technology like infra-red thermography to build an energy efficient environment, some developers from around the world are known to undertake carbon assessments for every project as carbon-impact can vary from region to region. The drive behind these moves are not just about reducing risks but adding value to investments; therefore health and wellbeing of the building also feature among the sustainable performance metrics.
The role of India in the ESG story
When it comes to ESG, India has its share of challenges – be it in the steep rise in commodity prices or in the shortage of reliable electricity supply or in financially poor electricity distribution companies obstructing the crucial transformation of the sector and high levels of air pollution in Indian cities. Yet, these challenges could be addressed if some of the policy measures are fully implemented.
On a positive note, India’s robust energy efficiency programme has successfully reduced energy use and emissions from buildings, transport, and major industries. The government is also determined to provide millions of households with fuel gas for cooking, thus facilitating a transition away from the use of traditional biomass, such as the use of firewood. Further, India is also laying the groundwork to step up essential emerging technologies like hydrogen, battery storage, as well as low-carbon steel, cement, and fertilisers.
The World Economic Forum (WEF) estimates that by shifting towards renewables, India can save over $90 billion in imports between 2021 and 2030. What is also reassuring for a growing economy like India is the continuous reduction in the cost of production of renewable energy. In fact, due to policy support, the per-unit cost of production of renewable energy in India is the cheapest in Asia-Pacific.
The activity around renewables has risen significantly. India registered a 75 per cent, when it signed merger and acquisition deals worth around $2 billion in renewable energy sector in 2020. Aiming to meet the target set by the government, the Union Budget announcement to permit foreign portfolio investments and offer additional capital for Solar Energy Corporation of India and Indian Renewable Energy Development Agency also augments the cash flows for the industry.
The road ahead
The energy sector has developed independently like coal, oil and gas, and renewable in post-independent India. A comprehensive incorporation of these power sources under one authority would benefit from harnessing more reachable, affordable, impartial, and clean energy. Furthermore, fossil fuels — coal, oil, and gas — are most preferred for economic growth across the globe due to their abundance and convenience of handling. This trend is expected to continue for a few more years, however consumption needs to be controlled not only because fossil fuels are depleting in nature, but also due to their unfavourable impact on the environment.
The transformation, in terms of conserving oil and gas and producing more renewable energy through independent endeavour as well as through collaboration across the energy verticals, will make India self-reliant in terms of its energy requirements.
The ongoing Russia-Ukraine war has severely disrupted global supply and India’s energy systems are also under stress. The approach of investors around the world to ESG strategies has been adversely impacted. It is especially true of the defence sector, which is significant to a country’s security. However, energy experts are of the view that this will be a short-term phenomenon and that net energy importers, especially those who depend on Russian oil and gas, will accelerate their renewables programmes to become more independent more quickly. This will trigger a strong focus on renewables, and further accelerate investment in them.
Finally, full-scale efforts like digitalization will enhance the productivity of energy production companies in India. Since cities play a crucial role in achieving environmental goals, a combination of technology with traditional services like cycles to reduce carbon footprints will create smart cities and help the country achieve carbon neutrality goals by 2030. Apart from facilitating the transition from fossil fuel to green hydrogen renewable energy, the energy industry also requires opportunities to calibrate and rearrange to find better solutions for emerging problems and become self-reliant.
(By Dr Niranjan Hiranandani, National Vice Chairman – NAREDCO & MD – Hiranandani Group)