The green energy sector took centre stage in Finance Minister Nirmala Sitharaman’s interim budget last week. Initiatives of particular note included gap funding for a one gigawatt of offshore wind energy capacity, biomass investment and substantial welcome support for the EV market.
Moves by India are in keeping with a wider global trend towards major energy investment. According to the International Energy Association (IEA) total annual energy investment is expected to surge to USD 5 trillion by 2030 adding an extra 0.4 percentage points a year to the annual global GDP growth.
Alongside this focus on renewable energy to help get India to a net zero carbon emissions position by 2070 is a focus on wider environmental impact and people – particularly in the renewables value chain from green metals to solar panel manufacture.
What is being referred to as the “Just Transition” aims to look beyond emissions reductions, to areas including environmental pollution, human rights, modern slavery, child labour and health and safety and is now the focus of new Indian BRSR Core regulations as well as legislation that has recently been introduced in Europe, Canada, Australia.
There have been a number of high-profile cases where energy companies have found themselves exposed:
- Leading US solar energy company, First Solar discovered forced labour in their Malaysian manufacturing operation.
- Solar panels manufactured in the Uyghur region of China are banned in the US due to human rights concerns.
- Balsa wood used in wind turbines has been tracked back to illegal deforestation in the Amazon.
- Indonesia, among others, is wrestling with illegal mining of its nickel reserves and the negative impact that is having on its marine environment and fishing stocks.
- Mining ventures in the US to extract green metals are experiencing resistance from indigenous peoples concerned, amongst other things, about the potential impact on traditional food sources.
That brings challenges for Indian energy companies that want to push ahead with major infrastructure projects. Global energy supply chains are complex, and it takes considerable time and resources to undertake the level of due diligence required to provide the confidence that business operations aren’t having a negative impact.
There are also very tangible benefits emerging for energy companies that can demonstrate their sustainability credentials. Lenders are increasingly reducing interest rates for the period of the loan or offering more favourable loan terms. Meeting agreed KPIs are significantly reducing borrowing over the lifetime of the finance. The cumulative issuance of green or sustainability bonds has now reached $3 trillion worldwide and companies with higher ESG scores on average enjoy a 10% lower cost of capital.
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