ESG in Industrial & Logistics Sector in India

ESG in Industrial & Logistics Sector in India: Supporting a Positive, Progressive Transition

Environmental, social and governance (ESG) measures are on top of the agenda for organisations and investors today, as these measure a company's sustainability and ethical impact. While the social and governance aspects are generally well covered by existing legislation and business practices, environmental considerations have a critical role to play in ‘the race to net zero’.

Interest in ESG issues is a means to assess the non-financial/social impact of business decisions in organisations.  In India, organisations are increasingly adopting ESG standards such as compliance norms (building codes/fire norms), no corrupt practices, reduction in emissions, green initiatives, women empowerment, corporate social responsibility etc. This attention is a result of the growing recognition of the impact that ESG factors have on the long-term prospects and sustainability of a business.

ESG enables organisations to focus on their financial goals while also paying attention to sustainable power generation concepts. Over the past few years, Indian companies have become increasingly conscious of their carbon footprint and are keen to explore ESG-linked products as they engage in more sustainable business practices.

Sustainable Develpment Goals (SDGs) Rankings 2022 - India's Position

As per the 2022 Sustainable Development Report, India is far behind other developed countries in terms of sustainable development rankings. India is positioned at 121 compared with other countries such as Finland which is number one on the list followed by the United Kingdom (11), Australia (38), Vietnam (55), China (56) and Thailand at 44th position.

The overall score measures the total progress towards achieving all 17 SDGs. The score can be interpreted as a percentage of SDG achievement. A score of 100 indicates that all SDGs have been achieved.

Source: Sustainable Development Resources

The Securities and Exchange Board of India (SEBI) mandated that the top 100 listed companies by market capitalisation must file their Business Responsibility Report (BRR) based on National Voluntary Guidelines on Corporate Social Responsibility (NVGs) along with annual reports. Business Responsibility and Sustainability Report (BRSR) was introduced in 2021.

The Union Budget 2022-23 announced a proposal to launch Sovereign Green Bonds as part of the overall market borrowings; this is another step towards energy transition and decarbonising the economy. The green bonds will be issued for mobilising resources for green infrastructure.

Indian companies raised nearly $7 billion through ESG and green bonds in 2021, compared to $1.4 billion in 2019. And as per the latest estimates from The Bank of America, ESG bond issuance from India could bring in $15 billion in 2022. In fact, in 2021, JSW Hydro, Greenko, ReNew Power, and Adani Green have been large issuers of Green Bonds. 

Recent Green Bond Issuances by Indian Companies

Source: Various secondary sources

Thus, as India works towards the five-point vision stated by the Prime Minister of India at the COP26 summit, the market is likely to see increased issuances of ESG and green bonds in the coming years. Once again, as per The Bank of America, the fundraising through these instruments by Indian organisations is likely to touch $25 billion between 2022 and 2024.         

Globally, around $15 trillion of funds focused on ESG and will be chasing investment opportunities. This opens an opportunity for not just companies in the green business but also traditional industries like cement and steel that commit to reducing the environmental impact of their businesses.

While regulatory developments are key drivers behind ESG adoption, the diversity of approaches poses challenges. It is expected that there will be increased adoption of ESG standards in the coming years. Developers, funds, tenants, material producers and project managers are likely to play key roles to support the delivery of a low carbon future.