In less than two decades, Environment, Social and Governance (ESG), which was first coined in 2005, has grown from a corporate social responsibility initiative launched by the United Nations (UN) to a global phenomenon with more than 30 trillion US dollars. in assets under management.
In India, the buzz around ESG has accelerated with ESG reporting which started in 2009. In the country as it stands today in 2022, all companies are trying to commit to the ESG objectives. In 2021, many Indian companies rushed to adopt ESG standards, following pressure from investors and regulators. Some of them have also started reshaping 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 generation of 50% of energy needs by renewable energies. energy by 2030; she is well on her way to achieving these goals and realizing her dream of becoming self-sufficient by following ESG standards.
These purpose-driven companies are largely influenced by millennials and next-gen consumers making conscious choices, forcing companies and investors to stay relevant. This talk boost has accelerated with the COVID-19 pandemic and meeting ESG standards is seen as ushering in a new era of investing with its three bottom line approach to the era of sustainability – where Companies consider not only financial returns, but also meet environmental and social standards.
Some of the other steps India has taken include a National Hydrogen Energy Mission (NHEM) to generate hydrogen from green energy sources. The plan to decarbonize Indian Railways by 2030 also involves electrification across all sectors to reduce reliance on carbon intensive fuels, encourage electric vehicles through various government programs, promote the shift from biomass for LPG cooking, encourage the conversion of all lights to LED inside homes. and streets and launch of a system for exchanging energy saving certificates.
The new indicators 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 11% currently to over 20% by 2040. The main reason for the global transition to renewable energy is the increase in technological advances. As a result, more and more economies are finding ways to generate and store renewable energy to meet the planet’s growing energy demand.
However, with investors, asset owners and developers massively adopting ESG, the built environment plays an important role as it emphasizes consensus building and informed decision-making to mitigate environmental impact. negative. Besides exploring technologies such as infrared thermography to create an energy-efficient environment, some developers around the world have been known to undertake carbon assessments for each project, as the carbon impact can vary from region to region. . The driving force behind these moves is not just to reduce risk, but to add value to investments; therefore, the health and well-being of the building is also included among the measures of sustainable performance.
India’s role in the ESG story
When it comes to ESG, India has its share of challenges – be it in the sharp rise in commodity prices or the scarcity of reliable electricity supply or the financially poor electricity distribution companies. which hinder the crucial transformation of the sector and the high levels of air pollution in Indian cities. Yet, these challenges could be addressed if some of the policy measures were fully implemented.
On a positive note, India’s strong energy efficiency program has succeeded in reducing energy consumption and emissions from buildings, transport and major industries. The government is also committed to providing millions of households with fuel gas for cooking, facilitating a transition away from traditional biomass use, such as the use of firewood. Moreover, India is also laying the groundwork for scaling up key emerging technologies such as hydrogen, battery storage, as well as low carbon steel, cement and fertilizers.
The World Economic Forum (WEF) estimates that by turning to renewable energy, India can save more than $90 billion in imports between 2021 and 2030. Which is also reassuring for a growing economy like India. India is the continuous reduction of the cost of production of renewable energies. In fact, thanks to political support, the unit cost of generating renewable energy in India is the cheapest in Asia-Pacific.
The activity around renewable energies has increased considerably. India recorded 75% when it signed M&A deals worth about $2 billion in the renewable energy sector in 2020. Aiming to meet the target set by the government , the Union budget announcement allows foreign portfolio investment and provides additional capital for Solar Energy Corporation of India and Indian Renewable Energy Development Agency also boost industry cash flow.
The road ahead
The energy sector developed independently like coal, oil and gas, and renewable energy in post-independent India. Full incorporation of these energy sources under one authority would benefit from harnessing more accessible, affordable, unbiased and clean energy. Moreover, fossil fuels – coal, oil and gas – are the most favored for economic growth across the world due to their abundance and ease of manipulation. This trend should continue for a few more years, but consumption must be controlled not only because fossil energies are depleting in nature, but also because of their unfavorable impact on the environment.
The transformation, in terms of conserving oil and gas and generating more renewable energy through independent efforts as well as collaboration across energy verticals, will make India self-sufficient in terms of energy needs.
The ongoing war between Russia and Ukraine has severely disrupted global supply and India’s energy systems are also under pressure. Investors around the world’s approach to ESG strategies has been negatively impacted. This is particularly true of the defense sector, which is important for the security of a country. However, energy experts are of the opinion that this will be a short-term phenomenon and that net energy importers, especially those dependent on Russian oil and gas, will accelerate their energy programs renewables to become more independent more quickly. This will trigger a strong focus on renewables and further accelerate investments in them.
Finally, large-scale efforts like digitalization will improve the productivity of power generation 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 footprint will create smart cities and help the country achieve carbon neutrality goals. ‘by 2030. In addition to facilitating the transition from fossil fuels to renewable green hydrogen, the energy industry also needs opportunities to calibrate and reorganize to find better solutions to emerging problems and become autonomous.
(By Dr. Niranjan Hiranandani, National Vice President – NAREDCO & MD – Hiranandani Group)