Recently SEBI came out with a discussion paper where it sought opinions from professionals in the ESG space regarding the BRSR framework that requires the top 1,000 listed entities by market capitalization to disclose information in the areas of business responsibility and sustainability.
Following this HDFC bank, the largest private sector bank came out with an ESG policy which states that the bank will not extend finance for setting up of new units which produce or consume ozone-depleting substances, responsible for the depletion of stratospheric ozone that keeps out harmful ultraviolet (UV) radiation from the sun.
Similarly, Axis bank exclusion list names, among others, industries that deal in banned wildlife-related products or are engaged in production or trade in radioactive materials or unbonded asbestos fibers.
And Now SBI bank, the largest lender in the country, has formulated a policy on environmental, social & governance (ESG)-compliant lending to companies. It is re-looking at its approach to funding thermal power projects from the perspective of asset quality.
These goals set by Top Indian Banks are in line with the United Nations Climate Change Conference (COP26) held in Glasgow in November 2021, where India had committed to reducing its total projected carbon emissions by 1 billion tonnes, and the carbon intensity of its economy by 45 percent and less by 2030.
Historically, much of the investment in renewable power in India has been in solar energy, but SBI now sees some models emerging in the hydro-power segment.
In the area of electric vehicles (EVs), SBI is in talks with players who have been identified under the central government’s production-linked incentive (PLI) scheme. Axis Clean Mobility and Ola Electric Technologies are among the companies identified under the auto PLI scheme.
To sum it up, as of now it is only a handful of Indian Banks have started incorporating ESG into their lending model, but as the SEBI's transitioning period comes to end and BRSR reporting is mandatory we may see more and more banks coming out with such policies.
However, it is still too early for India to completely stop relying on coal and hence we may still see some money flowing into thermal projects.
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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.
Sources