Financing decision type this summer?- Green

MONEY MATTERS CLUB The Official Finance Club Of IBS Hyderabad

Presents the May 2020 Edition of

The Financial Bulletin

Financing Decision type this summer? - Green

FROM THE EDITORS

The Financial Bulletin Money Matters Club IBS, Hyderabad Est..—2005

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Dear Readers, It gives us immense pleasure to come up with the May 2020 issue of The Financial Bulletin successfully.

In this issue, we aim to give you a brief description about Green Financing, its implementation and impact on creating a sustainable future.

We hope to deliver useful insights to the readers. May this issue be fruitful to each and everyone.

Happy reading!

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Money Matters Club, The official Finance Club of IBS Hyderabad.

Kritika Gupta Jagriti Gupta Juhi Parasrampuria Saisadwik Chodavarapu Newsletter Coordinators

MENTOR SPEAKS

Green finance is a new financial pattern to integrate environmental protection with economic profits, emphasizing ‘green’ and ‘finance’, two of which are controversial issues. Green finance development, which enhances innovation capacity and economic green transformation, helps people deal with the challenges of climate change, ecological crisis, and energy security. It is important to achieve sustainable and balanced development for green finance. There are studies conducted on the same and observed that an integrated green financial system shall have a positive impact on sustainability developments and cleaner production. Also, it is critical to strengthen the government regulation, slash financial institutions and enterprises’ green finance production cost, increase the compensation for consumer pollution, and reduce the supervision cost of government. Accordingly, there is a need for participation and cooperation among the governments, financial institutions, enterprises, and consumers to integrate a green financial system.

Green finance refers to financing tools for coping with climate change and others for sustainability. Corporate green innovation has become a hot topic in society and academia, but the relationship between green innovation and financing conditions is less frequently discussed. The green innovation, including green technology innovation and green management innovation, shall reduce the financing constraints of enterprises significantly. Moreover, the interaction between corporate environmental disclosure and green innovation can have a positive effect, further improving the financing conditions of firms.

The global low-carbon transition will define the global economy in the period

ahead. The new definition will include the divergence between those who succeed in transition and those who could not. One important tool to limit the divergence and help convergence is green finance. The major obstacle to reducing carbon emissions is the high cost of adopting clean energy, which reduces the market competitiveness of companies using clean energy. To encourage the use of clean energy technology to reduce carbon emissions, the government should use the per-product carbon emission tax to encourage the traditional supply chain to upgrade its carbon emission technology and should encourage financial institutions to provide preferential loans to the supply chain that has carbon emission technology disadvantage in the market.

There are both demand and supply barriers to green investment flows and even the information flow is not properly disseminated to investors. The regulators should put the proper infrastructure in place and work towards capacity building. The key concerns for both investors and regulators shall be green risk management and green governance. Responsible investing entails following ethical practices in green investment along with social responsibility. Moreover, financial innovations should be directed towards the integrated green financial system. A systems approach would be useful for policymakers to better understand linkages with cross-sectoral policy objectives, and to consider in a systematic way potential adverse indirect impacts or co-benefits of policies. It shall also allow them to understand the underpinning complexity and consideration of policy instruments beyond price incentives, such as changes in regulations or market-shaping policy approaches in general. This will be required to scale-up investments into the green financial ecosystem at the necessary scale and pace.

By – Dr. M V Narasimha Chary (Assistant Professor, Department of Finance- IBS Hyderabad)

Introduction to the Green Financing

Green Finance includes all the initiatives taken by private and public agents (e.g. businesses, banks, governments, international organizations, etc.) in developing, promoting, implementing, and supporting projects with sustainable impacts through financial instruments. Green Finance provides the financial aids required by agents to increasingly generate activities with positive and durable externalities.

Some examples of Green Finance projects are - the promotion of renewable energies, energy efficiency, water sanitation, environmental audits, reduction in the amount of transportation and industrial pollution, climate change, deforestation, carbon footprint, etc.

It is also important to note that for these changes to take place and produce the desired outcomes, in the long run, the active involvement of public, private, and international organisms is required.

In times when there’s a constant emphasis on sustainable practices and a conscious need for adopting cleaner energy, the role of finance has grown significantly over the past few years.

Why is Green Financing important?

Green Finance is vital because it promotes and supports the flow of monetary instruments and related services towards the event and implementation of sustainable business models, investments, trade, economic, environmental and social projects, and policies. As the financial sector plays a key role through its intermediary functions and risk management in advancing sustainable economic development while directing investment to the important economy, the

intertwinement of these two is crucial. Green Finance Initiatives have also been addressing the 2030 Sustainable Development Goals (SDGs) Agenda by emphasizing the shift of focus from shareholders’ value creation (economic) to the generation of stakeholder’s value.

Green Finance represents the longer term of the financial sector through innovative financial mechanisms and by supporting the investments in projects with positive and sustainable externalities. The overall goal of green finance is to assist mobilize public and personal sector financing for sound climate- and environmentally-sustainable investments and help enhance the transparency of environmental finance.

Indian Scenario Having set an ambitious target of 175 GW through renewable energy by 2022, India is ensuring the country moves towards the specified figure it has set out to achieve. India secured second place in the global ranking driven by its policy thrust towards renewable and increasing investments in the clean energy sector.

It is also the second-largest renewable energy investment market among all Climate scope countries, attracting USD 9.4 billion in new investments in 2017.

India has done a good job of mobilizing significant climate finance, especially in the renewable energy field and this is likely to continue. In sustainable transport, India will also be relatively successful in mobilizing the required funding, especially for manufacturing or infrastructure projects.

Scope for Green Business Ideas Global warming is a serious issue that needs to be addressed with greater urgency than perhaps we are witnessing now. It is complex, handling problems dealing with politics, equity, but green businesses, especially technology-based green start-ups, will play a big role during the transition to a more sustainable world.

Cleantech startups can solve problems today by designing and delivering products to customers that solve the needs profitably while still reducing the negative impact on our environment. Energy efficiency solutions can reduce a client’s energy needs and bill, which reduces the environmental impact of fixing more power plants.

Many financial institutions including multilateral development banks have been working together since 2012 through the technical Working Group of the International Financial Institutions (IFI TWG) to harmonize project-level greenhouse gas emissions accounting. The participating IFIs recognize that a harmonized approach will improve the consistency and comparability of their climate and development projects, set a good-practice example, and increase the robustness of the assessment of the climate impact of their investments.

By— Rohit Agrawal

Materials and Mining

The basic material industry is a basket term used for denoting companies working in extraction on Basic raw materials required for production purposes. The most common materials within the sector include mined products, such as metals and ore, and forestry products, such as lumber and paper. Raw materials, for the most part, are naturally occurring substances and resources. This piece of the bulletin focuses on the green financing initiatives taken by the mining companies operating in India and abroad, predominantly focusing on the Indian Mining Companies.

India produces 95 minerals – 4 fuel-related minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic minerals, and 55 minor minerals (including building and other minerals). India is the 3 largest producer of coal as of FY 2018-19, and 2 largest producer of crude steel as of 2018 and also has almost 8% of the world’s Iron ore deposits. The primary impact of the mining sector is not limited just limited to environmental issues but also to a broad range of social issues that it gives rise to in the mining value chain. Environmental issues range from Air pollution due to the explosions at the mining site, water pollution is caused due to releasing of water contaminated with heavy metals and acids, and also these mining companies harm the local flora and fauna surrounding the mine. rd

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To counter this problem the companies have been investing in technologies to prevent further damage and moving slowly toward sustainable mining practices.

In 2019, the government of India had set up a Sustainable Development Cell

(SDC), to monitor the environmental issues related to mining in India. Thus, the companies operating in this sector are working hard to maintain a balance between ‘Profits and Priorities’, one such example is Vedanta Ltd. Vedanta Ltd. India’s one of the leading mining company has implemented various environment management schemes by investing around $100 mn in the year 2017-18. The various investments made by the company include wastewater treatment plants across their business locations and investment in technologies related to improving Air- Quality by reducing their emission levels.

This investment led to a reduction in Greenhouse Gases by 14% as compared to the baseline set by the company. Also, water recycling plans of the company led to a saving of 40,000 m3 of water.

Another example we can take here is the HINDALCO. Ltd. Hindalco Industries Limited is a flagship company of the Aditya Birla Group. It is an industry leader in aluminum and copper products with mining and manufacturing operations spread across nine states in India. In an attempt to reduce its environmental footprint the company has partnered with a Norwegian advisory firm Xynteo to develop solutions for a sustainable environment. The company has received Zero Liquid Discharge (ZLD) status for 11 out of its 15 plants. The company is also moving to use of Solar power for captive consumption, by installing a 30MW solar power plant at Aditya Aluminium in FY 2018-19. In addition to this, the company has also invested Rs. 153 crore in FY 2018-19 for the installation of energy conservation equipment in their plants. The company is also instrumental in buying Renewable Energy Certificates (REC), which is a market-based instrument to promote renewable energy and facilitate the compliance of renewable purchase obligations (RPO). The company has bought around 13 lakh certificates, where 1 certificate is treated as equivalent to 1 MWh of renewable energy produced.

The above two companies are examples of how the companies under the mining sector are working efficiently towards building a sustainable future. Green financing norms will boost the morale of the companies to work in the same direction for years to come by.

By— Nihal Kumar

Electricity

As per India Brand Equity Foundation (IBEF) reports, India is the third-largest electricity producer and consumer in the world. Sustained economic growth continues to drive electricity demand all around the globe. So to choose a technology for electricity production today, there must be a balance between a variety of factors such as the satisfaction of people, economic outcome, and environmental impact. The generation of electricity requires the consumption of natural resources (mainly fuels), emissions that directly and indirectly generate several local and global impacts, consumption of water, generation of conventional and nuclear waste, and finally, the installation of infrastructures that have effects on certain natural spaces and the flora and fauna of the area. These things have compelled us to think about society and for the environment.

With green financing gaining momentum, the electricity industry is experiencing an unprecedented change, shaped by four key themes, namely - Affordability, Decarbonization, Decentralisation, and Digitisation.

Decarbonizing the power sector means reducing its carbon intensity, i.e., reducing the emissions per unit of electricity generated (often given in grams of carbon dioxide per kilowatt-hour). It represents a major challenge for the energy industry.

In the UK, almost a third of electricity was generated by renewables in 2018 Q314, and the carbon intensity of British electricity reached 248g Co2/kWh in 2018, from 529 g Co2/ kWh in 2013. 2019 was the first year in history when more electricity generation came from zero-carbon sources than fossil fuels.

The energy system is in the transition from high to low carbon. This change coincides with a shift to more decentralized generation, from renewables to renewa-

bles paired with emerging battery storage. As the volume of this intermittent and distributed generation increases, a more resilient and flexible system will be required, one that makes the best use of available energy resources to meet consumers’ needs in a balanced, efficient, and economical way.

India and Germany have signed an agreement on technical cooperation under the Indo-German Energy Programme - Green Energy Corridors (IGEN-GEC). The Green Energy Corridor Project aims at synchronizing electricity produced from renewable sources, such as solar and wind, with conventional power stations in the grid. The purpose is to evacuate 20,000 MW of large-scale renewable power and improvement of the grid in the implementing states. The project is being implemented by eight renewable rich states of Tamil Nadu, Rajasthan, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Himachal Pradesh, and Madhya Pradesh.

Companies like TATA Power Ltd., Power Grid Corporation of India Ltd., Adani Power Ltd., and NTPC who are the leading companies accountable for electricity generation in India have realized the importance to become greener as it has become a need of the hour to create sustainable value to remain competitive in the market. These companies have taken various initiatives such as Green Installation by Power Grid Corporation of India, Greenolution by TATA Power Ltd., etc. NTPC has the highest expenditure of Rs. 285.46 Cr., followed by an expenditure of Rs. 32.87 Cr. by Power Grid Corporation of India Ltd. whereas Adani Power Ltd. spent around Rs.12.078 Cr. and TATA Power Ltd. spent around Rs.14.71 Cr. yearly. These expenditures are focused on contributing to the environment and society.

The major issues faced by these companies are lack of long-term financing for greener projects, the existence of various risks such as mechanical breakdowns, deficiencies in metering, the risk regarding feasibility, etc. Greener projects call for higher expenditures.

Despite these issues, the companies in the electricity sector are continuously working towards creating a better environment. For example, Tata Power Ltd. discloses its greenhouse gas emissions and climate change strategies through Carbon Disclosure Project (CDP), an independent not-for-profit organization holding the largest database of primary corporate climate change information in the world.

By— Kavita Sharma

Oil and Gas

On September 25, 2015, the United Nations General Assembly adopted the 2030 agenda for Sustainable Development, which aimed to establish global consensus for the next 15 years. The sustainable development goals for the oil and gas industry impact communities, ecosystems, and economies, and highlight sustainability challenges, where more can be done to mitigate the adverse impacts of oil and gas development. Among the challenges, the most acute is the industry’s environmental footprint on biodiversity, and climate change and its associated impacts on communities.

Hundreds of billions of dollars of investment are needed to address climate change that includes investment in clean energy and efficient transport to reduce carbon emission. Investment is also required for infrastructure to protect the communities from extreme and volatile weather. Activities such as excessive use of resources, excess emission of unfiltered or semi filtered gas, oil spilling in the water bodies leading to the death of many species, leakage of oil while transport of cargo has made us rethink about few industries who are the main reason for all the activities and oil and gas companies comes under one once such industry.

Oil and gas companies know the clock is ticking to turn greener as investor demand for climate action mounts. According to a new report by Morningstar, BP, Shell, Chevron Repsol and Total are the leading oil companies trying to reduce greenhouse gas intensity to remain competitive in the market. More than 50% of the oil and gas companies consider climate change when making any business decisions or having any strategies to reduce emissions. BP has the

highest expenditure on climate lobbying at $53 million, followed by Shell at $49 million. Chevron and Total each spend around $29 million every year. These expenditures are focused on branding activities which suggest they support action against climate change.

The major issues faced by these companies are to reduce their cost to remain competitive i.e. producing more crude oil which is done by optimizing production and environmental utilities without hampering the environment at the same time on currently operating site stands as their priority. They are also trying to improve the environmental footprint to meet increasingly stringent standards.

The oil and gas industry is a major consumer of water and energy sources and is subjected to increasing environmental standards. This forces them to re-think their extraction, production, and distribution processes to maintain their license.

Over the past four years, the Oil and Gas Climate Initiative(OGCI) has brought together international and national oil and gas companies to accelerate the deployment of concrete solutions to reduce the greenhouse gas emissions.

Indian scenario The oil and gas sector in India is governed by the Ministry of Petroleum and Natural Gas (MoPNG) and is dominated by state-run firms, although the private sector has a growing share in the operations of the industry. The dominant industries are ONGC, OIL, RIL, GAIL, GSPC. To underscore its commitment to building a climate-resilient future, India has voluntarily undertaken the Hanumanian national target of reducing the emissions intensity of GDP by 33-35% by 2030 by increasing its energy mix of renewables to 40% and aiming at becoming all-electric vehicle users by 2030. India’s green bond market is currently pegged at about $3 billion, with the majority of it being allocated to renewable energy projects.

Role of Banks and Financial Institutions The market in green and sustainable finance distinguishes between, on the one hand, green bonds and loans, where the proceeds are to be applied to fund eligible green projects (e.g. renewable energy projects, energy efficiency processes and low carbon transport) and on the other hand, sustainability linked loans, where the terms of the loan are in some way linked to performance under sustainability criteria or third party assessments of "greenness". Goldman Sachs announced that it would do less to finance pollution-related projects, and would harness money to support more environmentally friendly businesses. Financing the fossil fuel producers remains big business for the big banks. JPMorgan Chase

& Co. topped Rainforest Action Network’s global ranking by providing $196 billion in fossil-fuel financing from 2016 to 2018. Bank issuance of green bonds and loans for projects or activities focused on environmental benefits was $581 billion from 2016 to 2018. This means that green bond issuance would need to more than triple to equal banks’ fossil-fuel financing in the same period. Financial market participants now possess a range of tools to encourage, reward (or punish) borrowers and issuers engaged in the development of green projects (such as renewable power generation, carbon reduction, waste reduction, and energy efficiency projects) or the implementation of sustainable business strategies designed to achieve concrete and verifiable ESG goals.

By—Sohita Vidushi Parvathareddy

Technology

Technology has profoundly shaped the economy and the environment. On one hand, it has caused many environmental and social problems, whereas, on the other, it has addressed environmental degradation, climate change, food scarcity, waste management, and other pressing global challenges. Companies have now incorporated the technological aspect to its operations which have made the business's environments friendly.

Technologies in Green Financing used by different companies 1. Walmart

Walmart, one of the most important retail firms, is deploying its resources towards digital transformations which are eliminating wastage and reducing energy consumption which facilitate the possibility of an efficient supply chain.

They are taking a significant role in agriculture which enables them to improve quality and cut down costs. In 2018 the robber was developed which is a selfmanned drone for pollinating crops equipped with cameras and sensors.

Walmart’s food offer chain has incorporated this drone in its business operations which have made it possible for them to address agricultural issues.

2. Microsoft Microsoft has been an active participant in this arena of green financing by optimally utilizing its technological resources which not only helps in reducing energy consumption but also saves time. Microsoft’s cloud computing has inevitably empowered energy to influence business operations positively. It has also

led to a reduction in waste material. The magnified accessibility of serverless and American Standard Code for Information Interchange (ASCII) text file software package minimizes cooling processes, ventilation, and air-con in fewer knowledge centres that facilitate operations. Microsoft even added power management on its products to enable sensible energy consumption on finished devices like monitors and laborious drives.

3. WISErg WISErg is a hybrid technology company that has created revolutionary solutions for managing urban-generated organics. WISErg had commercially launched a product Harvester in 2014. In no time it had gained popularity among all stores and facilities across the whole foods market. This product is a machine that transforms food waste into high-quality fertilizer before it becomes waste. The food waste is transformed into a high-nutrient liquid which is convertible into organic lawn care products.

4. Freight Farms Freight Farms is a Boston-based startup that was launched in 2010. It has metamorphosed shipping containers into self-contained farms. These freight farms have enabled the customers to grow fresh products by utilizing LEDs and hydroponics (the process of growing plants in sand, gravel, or liquid) in any environment throughout the year. They also have an application designed which enables them to monitor remotely by controlling aspects of the farm such as humidity and temperature. These freight farms have $ 85,000 set as manufacturer’s suggested retail price (MSRP).

5. Elevate Structure Elevate Structure was launched in 2012 to develop a profitable real estate business using eco-friendly techniques. They have designed a plan to utilize the floor space optimally for which the portable spaces are elevated above the ground enabling them to use a maximum of twenty times more usable space. This has given its customers the flexibility to expand or relocate their green homes which are so designed and constructed that it minimizes time and costs.

By— Pooja Poojara

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