An economy like India should have its own independent view of Environmental, Social, Governance (ESG) matters, Madhabi Puri Buch, the chairperson of SEBI, said at a conference in Mumbai.

She said SEBI has been advocating that ESG be measured in terms of purchasing power parity basis to make companies in emerging market economies like India comparable to companies in the US, who get unnecessary advantage due to higher value of the dollar when compared in other matrix — intensity emission per dollar value. She also highlighted a concept called ‘Green washing,’ which is when companies or organisations make consumers believe they are environment-friendly when in fact they are not.

Buch was speaking at the national conference on ESG for Atmanirbhar Bharat in Mumbai.

ESG rating

She said corporates were the first while the ESG rating providers were the second-most crucial part of the ESG ecosystem. She believed that the ratings mechanism would evolve structurally, going ahead. The third leg, according to Buch, is ESG schemes run by mutual funds (MFs) that are important for industry transformation. ESG-focussed funds fall under the thematic fund category defined by the Association of Mutual Funds in India (AMFI).

As per a report by Standard Chartered’s titled Sustainable Banking Report 2022, India can mobilise $1 trillion towards top ESG priorities, particularly for financing the climate transition by 2030. Many global funds are investing in Indian companies based on their ESG score and are avoiding investing in companies that harm the environment. Nearly nine asset management companies offer ESG funds to investors including one from SBI Mutual Fund. 

“It is very important that the investing entities like MFs have certain important rules and disclosures that they follow,” Buch said. 

Trading carbon credits

She believes in having multiple markets for trading carbon credits, instead of one carbon credit market. “For emerging markets and low-cost economies like India, it is desirable to have its own market for carbon credit so that entities have some hold on pricing,” Buch said. Carbon credit is nothing but points given to industries where an entity is allowed to produce a limited amount of carbon dioxide (or any other greenhouse gas). If a coal company is allowed by the regulator to produce 10 tonnes of carbon dioxide a month, and it produces just six tonnes, it can sell the remaining four tonnes to another company that is likely to exceed the cap. Thus, those producing less carbon gain more credits, while polluters end up paying more.

“What will happen eventually is that carbon credit will become like a commodity, a currency and therefore it will be an important issue for us as a sovereign to maintain independence over our carbon credits,” Buch said