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30, September 2024
This section focuses on key developments globally, in the US, India, and the Middle East, dissecting the most recent news and analyzing its potential to influence regional landscapes, businesses, and consumers. Uniqus provides our insights into how these developments may shape current market dynamics and set the stage for future opportunities and challenges.
1. European Commission releases updates on EU Corporate Sustainability Reporting Directive (CSRD)
In early August, the European Commission released a draft Frequently Asked Questions (FAQs) that provide further details on the scope and implementation of the Corporate Sustainability Reporting Directive (CSRD) and certain provisions of the first set of European Sustainability Reporting Standards (ESRS). These FAQs offer valuable guidance for companies preparing to comply with the CSRD. Some highlights from the FAQs include:
The updates come as part of the effort to make these standards more accessible and clearer to reduce the compliance burden.
Uniqus’ POV
The guidance on scope applicability and reporting boundary was interspersed between various directives, such as the accounting and transparency directives. The FAQs serve as a compilation of these directives and resolve several questions that existed for first-time CSRD adopters.
2.UK government plans to regulate ESG rating agencies
A new bill to regulate ESG rating agencies in the UK, announced by Labour Chancellor Rachel Reeves on August 8, 2024, is expected to come into force in 2025. The legislation aims to improve transparency among market participants and establish consistent methodologies for ESG ratings, enabling investors to make more informed decisions. The move aligns with recent actions by the EU Parliament, which adopted new regulations in April 2024 to enhance transparency and integrity in the activities of ESG rating providers. The UK’s forthcoming legislation is expected to closely follow the EU’s approach, focusing on better disclosure from ESG rating agencies regarding their methodologies and the factors considered in scoring.
Uniqus’ POV
Recent developments in the EU and UK are pivotal for businesses navigating the evolving landscape of ESG regulations. The European Commission’s clarifications on the Corporate Sustainability Reporting Directive (CSRD) and the UK’s planned regulation of ESG rating agencies reflect a broader trend toward standardization, transparency, and accountability in sustainable finance. Both developments underscore the importance of proactive preparation for expected regulatory changes.
1. CDP report indicates 85% of financial institutions are leveraging ESG ratings
An August 2024 report released by CDP highlights that 85% of financial institutions (FIs) reporting to CDP identified climate-related opportunities with significant financial or strategic impacts on their business. Notably, 18 of these institutions, collectively managing $4 trillion in assets, pointed to “improved ratings by sustainability/ESG indexes” as a primary driver of these opportunities.
2. California lawmakers pass amendment SB 219 to its climate accountability package, to be decided upon by Governor Newsom in September 2024
California grabbed attention when its lawmakers approved three climate laws in 2023. These included SB 253 (GHG emissions disclosure) and SB 261 (climate risk disclosure), which were covered by Uniqus previously, followed by AB 1305 (carbon offset disclosures) – together often referred to as California’s climate accountability package. However, the state has since delayed enforcement of these laws due to issues around establishing adequate funding and appropriate implementation rules.
Uniqus’ POV
The US continues to experience regulatory challenges around sustainability and climate- related disclosures, as evidenced by the hurdles faced by California in implementing its climate accountability laws. California’s climate laws also face pending litigatory challenges in federal courts, the outcomes of which will affect current and future attempts to establish reporting frameworks in the US.
1. India Facing Escalating Climate Risks Amid Insurance Hurdles
India faces mounting climate risks that threaten critical sectors like agriculture, which contributes 15% to GDP and employs 40% of the workforce. Between 2015 and 2021, climate events destroyed millions of hectares of crops, with economic losses reaching USD 159 billion in 2021 alone. The insurance sector is struggling to cope with these rising risks, with record underwriting losses of over USD 100 billion in 2023, reducing coverage in high-risk areas. By 2050, climate change may force 45 million people to migrate, disrupting local economies. To address these challenges, insurers, policymakers, and stakeholders must collaborate to create adaptive, resilient solutions that protect vulnerable communities and sustain economic growth.
Uniqus’ POV
India’s increasing climate risks demand urgent collaboration between insurers, policymakers, and businesses to enhance resilience in high-risk sectors. The insurance industry must explore innovative partnerships to ensure vulnerable communities, especially in agriculture, can access affordable coverage. Promoting investment in climate adaptation and resilience is crucial to safeguarding the economy and society, particularly as climate migration threatens to disrupt local economies. Stakeholders must proactively bridge the insurance gap and secure sustainable futures for vulnerable populations.
2. Sovereign green bonds trading at IFSC to commence in 2nd half of this fiscal
The Reserve Bank of India (RBI) has introduced a scheme to support the trading and settlement of Sovereign Green Bonds (SGrBs) in the International Financial Services Centre (IFSC). Although derivative instruments and repo transactions are prohibited, eligible investors can participate in primary auctions and secondary market trading. IFSC Banking Units (IBUs) are limited to secondary trading under a “back- to-back” arrangement with their parent banks in India to avoid overnight positions. This scheme aims to enhance participation and strengthen India’s green finance market, with additional guidelines to be provided by the IFSC Authority.
Uniqus’ POV
The RBI’s new scheme enhances India’s green finance landscape by facilitating the trading and settlement of sovereign green bonds (SGrBs) within the International Financial Services Centre (IFSC). This initiative provides a structured framework for international investors to participate in green bonds while maintaining regulatory controls, particularly prohibiting derivative instruments and repo transactions. The “back-to-back” trading arrangement for IFSC Banking Units (IBUs) ensures effective risk management. This scheme is a significant step towards attracting sustainable investments and supporting India’s climate objectives.
3. Government Declares CCUS As Unviable for Upgrading Existing Thermal Power Plants
The Indian government has determined that Carbon Capture, Utilization, and Storage (CCUS) is currently not viable for retrofitting existing thermal power plants due to its high cost and energy demands. Effective implementation of CCUS requires significant climate finance and technology transfer, which depends on international collaboration. CCUS, which involves capturing and storing CO2 from large sources, remains complex and costly, particularly for existing infrastructure. The government underscores the need for developed countries to lead in emission reductions and support developing nations through finance and technology, reflecting principles of global climate equity and shared responsibilities.
Uniqus’ POV
The government’s stance on Carbon Capture, Utilisation, and Storage (CCUS) highlights its current impracticality for retrofitting existing thermal power plants due to high costs and technical challenges. This situation underscores the urgent need for increased climate finance and technology transfer to make CCUS feasible. Furthermore, the emphasis on developed countries taking the lead in emissions reductions and supporting developing nations is essential for advancing global climate goals and ensuring effective, equitable climate action across all countries.
1. Dubai Chamber of Commerce launch a new ESG Label for businesses
The Dubai Chamber of Commerce recently launched a new Environmental, Social, and Governance (ESG) Label to promote sustainable business practices. The label helps organizations evaluate their ESG readiness and maturity levels, align with ESG best practices, enhance brand image and reputation, and foster business growth.
The ESG Label builds upon a thorough assessment and integration of global and regional regulatory frameworks to determine an organization’s ESG maturity and global best practices that meet the local and international ESG reporting and preparedness baseline.
Uniqus’ POV
There is an increased need for businesses of all sizes to integrate ESG considerations into their governance, strategy, operations, risk management, and reporting to meet evolving stakeholder demands and regulatory requirements and align with best practices while gaining a competitive advantage. The Dubai Chamber of Commerce recently launched ESG Label presents the opportunity to businesses in Dubai to assess their current ESG standing and showcase their maturity. This initiative will encourage lagging businesses to kick-start or improve their ESG journey.
2. Oman explores green mobility initiatives and Intelligent Transportation Systems (ITS)
Oman is making significant strides in revolutionizing its public transport system by focusing on green initiatives that explore the potential of hydrogen fuel cell technology and integrating solar energy to reduce reliance on fossil fuels. In addition to introducing electric and hydrogen buses, the Oman government is also supporting the production of sustainable local biofuel, which could further enhance the sustainability of its transport sector.
Uniqus’ POV
Oman shows commitment to its goal of achieving net zero carbon emissions by 2050 with increased economic value, industrial competitiveness, and green investment opportunities. This is especially true in the transportation sector where the country aims to achieve a major overhaul with a transition to electric vehicles (EVs) within an improved public transportation system. Also, through the Oman Vision 2040, the country supports energy transition and green hydrogen.
This section delves deep into a significant ESG development, offering comprehensive insights and a nuanced perspective. We break down the critical facets of this development, analyzing its implications for businesses, investors, and regulators. Our in-depth analysis clarifies the potential impact on global markets and how this change may influence strategic decisions across sectors. Join us as we explore this development, shedding light on the opportunities and challenges in the evolving ESG landscape.
Climate Change: A growing threat and the urgency for a transition to Net-Zero
The increase in the concentration of greenhouse gases (GHGs) in the atmosphere, which results in climatic change, is one of the biggest global problems of the century. The mean global temperature on earth has increased by about 1.1 degrees centigrade since 1880, and most of it has occurred since 1975 at a rate of roughly 0.15 to 0.20°C per decade1. This phenomenon has had a chain of disastrous impacts that have affected the world’s biological and social systems. Nowadays, we very often experience the adverse impact of climate change in the form of various global and local phenomena like heat waves, droughts, floods, sea level rise, ocean acidification, and many others.
Climate change has several effects on society, which are worse for marginalized communities. Natural disasters, therefore, result in new displacements, food and income insecurity, and property loss, and, above all, can be catastrophic for human life. Higher temperatures result in sea-level rise that puts the coastal regions, communities, and structures in a vulnerable position. Climate change negatively affects crop yield, water availability, and even livestock, making the agricultural sector highly sensitive. Besides, climate change is dangerous to business, supply chain, and financial well-being. Since exposure to climate-related disasters is becoming more frequent and severe, organizations across the globe are exposed to greater operational and financial risks.
The imperative to address climate change has never been more urgent. The longer we wait and procrastinate on the issue; the impacts are going to be worse and permanently conceding. Introducing a low-carbon economy is imperative not only to compensate for it from the moral standpoint but also from the tactical aspects. In this regard, by taking concrete actions to prevent GHG emissions, we speak for ourselves, minimizing the severe effects of climate change, leaving the world a better place for the next generations, and unlocking prospects for new economic activities.
This section features exclusive interviews with industry leaders at the forefront of ESG transformation. These experts share their experiences, challenges, and visions for a sustainable future in these candid discussions. Their valuable insights can inspire and guide others on their own ESG journeys.
HDFC Bank is one of India’s leading private banks and was among the first to receive approval from the Reserve Bank of India (RBI) to set up a private sector bank in 1994. As of July 2024, the Bank’s distribution network was at 8,883 branches and 21,080 ATMs/Cash Recycler Machines across 3,836 cities/towns. The Bank has five key subsidiaries, HDB Financial Services Limited, HDFC Life Insurance Company Limited, HDFC Asset Management Company Limited, HDFC ERGO General Insurance Company Limited and HDFC Securities Limited.
We interviewed Ms. Anjalee Tarapore ,Executive Vice President & Head ESG of HDFC Bank.
Regulation around ESG continues to evolve rapidly. This section summarizes some of the latest regulatory developments across critical global markets, including the US, EU, UK, India, and the Middle East. Our analysis captures the nature of the legislative changes or updates and our high-level assessment of broader implications on business practices and compliance strategies.
Uniqus has observed and summarized leading ESG practices worldwide, aiming to inspire governments, businesses, and individuals. We highlight exemplary initiatives and strategies that set environmental stewardship, social responsibility, and governance excellence standards. Learn how these best practices achieve sustainable outcomes and drive meaningful change across various sectors and communities.
Rwanda: World’s First Development Bank to Globally Issue its First Sustainability-Linked Bond (SLB)
The Development Bank of Rwanda (BRD) has made a significant leap in sustainable development finance by issuing its first Sustainability-Linked Bond (SLB), a pioneering move backed by the World Bank. As the first global development bank to issue such a bond, BRD sets a new standard for private capital mobilization to support sustainable development. This issuance is crucial in addressing the multi-trillion-dollar investment gap needed annually in emerging markets to meet climate and poverty reduction goals.
Aligned with its Vision 2050, Rwanda faces challenges in securing the necessary financing for its sustainability ambitions. Traditionally reliant on government and international funding, BRD’s SLB represents a game-changing shift, offering access to diverse funding sources. The bond incentivizes BRD to achieve key performance indicators, such as increasing ESG compliance, expanding funding for women- led projects, and financing affordable housing.
A standout feature is the innovative credit enhancement mechanism, where USD 10 million in IDA funds collateralized the bond, reducing investors’ risk and enabling BRD to raise three times the amount in funding. Oversubscribed and attracting over 100 investors, the bond has successfully diversified BRD’s funding sources while reducing exposure to foreign exchange risks. This groundbreaking issuance supports Rwanda’s sustainable development and is a model for other emerging markets.
Dive into the essentials of ESG with our monthly spotlight on key topics, themes, and concepts shaping the landscape of sustainable business practices. In each issue of our newsletter, we select a new focal area to give you an in-depth understanding of its significance and application.
ESG Investing
ESG investing evaluates how companies perform on these ethical standards and metrics for potential investments. Environmental factors assess how a company protects the environment. Social factors review how it handles interactions with employees, suppliers, customers, and communities. Governance evaluates a company’s management, executive compensation, audits, internal controls, and shareholder rights.
ESG investing is also known as sustainable, responsible, impact, or socially responsible investment (SRI). Investors consider various actions and policies when evaluating a company using ESG criteria. ESG investors aim to verify that the companies they invest in are environmentally responsible, ethical corporate members, and managed by responsible leaders based on specific criteria such as:
Environmental: Investors assess climate strategies, energy consumption, waste management, pollution control, conservation of natural resources, and companies’ treatment of animals. Factors to consider may involve direct and indirect greenhouse gas emissions, handling of hazardous waste, and adherence to environmental regulations.
Social: The company’s interactions with internal and external stakeholders are assessed. Is the company contributing a portion of its profits to the local community or promoting employee volunteerism? Do working conditions prioritize the health and safety of employees?
Governance: Verifies that a company utilizes precise and clear accounting techniques, promotes honesty and inclusivity in appointing its leadership, and is responsible to its shareholders. ESG investors might seek guarantees that companies steer clear of conflicts of interest when selecting board members and senior executives, refrain from leveraging political donations to gain special treatment and refrain from participating in unlawful activities.
To summarize, companies that adhere to favorable environmental, social, and governance principles are the center of ESG investing. Investors are growing interested in aligning their portfolios with ESG-related companies and fund providers, leading to its expansion and positive impact on society and the environment.
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