As the global economic recovery begins to take shape in the aftermath of the Covid-19 pandemic, there is a need to rethink our investment priorities and developmental initiatives. The temporary disruption in financial value chains is an opportunity for institutions and decision makers to refocus their energies on promoting sustainability and climate mitigation efforts, which are set to be the defining economic questions of the 21st century.
Even though the Economic Survey 2019-20 declared India as the second-largest emerging green market with transactions worth $ 10.3 billion recorded during the first half of 2019, there is still a lot of room for growth. Various estimates suggest India will require around $ 170 billion a year to meet climate mitigation and sustainability goals, as codified in the Paris Agreement. At the same time, this paradigm shift will yield new opportunities for investors and entrepreneurs worth $ 3.1 trillion.
This was the context that set the tone for the second episode of ‘The Making With Shereen Bhan’, in association with HSBC, as she connected with Rajat Verma, Managing Director and Head- Commercial Banking, HSBC India and Ashish Bhandari, MD & CEO, Thermax, to talk about financing India’s green future.
Lessons Learnt
At the very outset, there was a convergence of opinions on the seminal impact of the economic downturn in focussing corporate strategy on sustainability. Responding to a question about the structural changes, Rajat Verma cited the banking industry’s general shift towards green projects. “Financial institutions are thinking more deeply about environment and sustainable financing”, he said. But the shape and form of those capital investments is yet to be known, as infrastructure reels from the latest crisis, to transition from what Ashish Bhandari called “megaprojects, that are more infrastructure related” to smaller, more sustainable projects. “So instead of one mega refinery, you could have hundreds of small bio-mass based plants”, he elaborated.
The sudden thrust towards sustainable financing has posed new challenges too. Though figures quoted by Shereen Bhan revealed assets under ESG funds have grown by 27% in the first quarter of 2020, there is still a massive financing gap. “Investment required in renewable energy and sustainability goals is a humungous investment, which cannot possibly be met by only public means. Therefore, you need to have more private investment coming in”, was Rajat Verma’s assessment, alluding to the need for an overarching commercial structure. Although banks such as HSBC have earmarked nearly $ 1 trillion worth of sustainable financing support globally until 2030, Rajat Verma added that “it’s the business model and the sustainability of that business model which will determine how much of capital is going to be available and flow into the sector”.
Cause for Optimism
“Few industries know the struggle of trying to marry sustainability with viability better than infrastructure” noted by Shereen Bhan. With regards to deepening sustainable financing, Ashish Bhandari was very categorical about the need for proactive public policy. “How the government funds recovery, what areas it chooses to focus on, will decide what the future will look like”, he said. And while government regulations have begun to catch up, with new Ministry of Corporate Affairs guidelines, that deeply influence corporate behaviour, requiring India’s top 1000 biggest companies to file a sustainability report, Ashish Bhandari sees an associated progress in sustainable finance and technology as well. “In the last 2-3 months, all the projects that have got started and got funded, all have some green element”, he added.
While technology and public policy work together to create and incentivize green technology, sustainable finance is searching for its own path-breaking innovation to draw in investment. A big step, according to Rajat Verma, has been drawing out of stakeholder capitalism metrics by the World Economic Forum. “The goal is to have this kind of transparency, benchmarking and tagging of such initiatives”, he said, referring to how the stakeholder capitalism metrics will help in correctly categorizing sustainable initiatives and in the mainstreaming of sustainable finance. It’s a trend HSBC have themselves played a key role in spearheading, by launching the ‘Finance to Accelerate the Sustainable Transition – Infrastructure’, or FAST Infra initiative in May 2020, along with IFC/World Bank and OECD, with an objective to encourage more investment in building sustainable infrastructure.
The Smart Thing To Do
Admittedly, this shift towards eco-conscious and sustainable development was more out of necessity than choice. As Ashish Bhandari bluntly put it, “For India to manage energy availability and energy sustainability, both have to be done.” On a more personal level, it means that “for companies like Thermax, it’s not a question of looking at infrastructure as a sector specifically, but start to retool our companies for where the world is going.”
Rajat Verma, on his part, was upbeat about the start of an irreversible move towards a green future. He was confident in the power of proactive public policy and strong commercial fundamentals to kick-start India’s march towards sustainable development. “You can’t have financing success if the government policies are not in line. But once you have those in place, and once you have the technology in place, then I think there’s no real economic reason why this won’t succeed.”
Watch the full discussion.
This is a partnered post.