SustainabilityConnect Newsletter March 2023

SEBI, capital market regulator in India has released a new set of proposals seeking public consultation in ESG disclosure, ESG ratings and ESG investing

Following the Business Responsibility and Sustainability Reporting (BRSR), the Securities and Exchange Board of India (SEBI) has mandated the disclosure of ESG data by the top 1000 listed companies (based on market capitalization). In FY 2021-22, more than 175 companies have voluntarily reported on the BRSR framework, and the same reporting is mandatory from this financial year (FY 2022-23) onwards.

To improve credibility and limit the cost of compliance, the ESG Advisory Committee (EAC) has identified a few critical areas and developed a BRSR core framework presented in the consultation paper's first part. The EAC plans to deliberate a few leadership indicators to essential under the current BRSR framework and standardize sector-specific disclosures.

Under the BRSR core:

• The factors are relevant to the manufacturing and service sectors in the Indian Context.
• The Social parameters include job creation and inclusive development.
• The Governance parameters include openness/concentration of business, including related party transactions.
• KPIs include intensity ratios based on revenue and volume, including GHG emissions, water consumption, waste generation, etc.

The ESG disclosure for the supply chain is another primary KPI covered under leadership indicators. However, tracking and reporting on many ESG metrics can be difficult for small suppliers or unlisted firms. ESG disclosures per BSRS Core for the supply chain are requested to report on a comply-or-explain basis for the Top 250 companies by market capitalization in FY 2024-25.

Corporate ESG ratings are generally based on self-reported data without third-party assurance. The committee has identified 15 ESG parameters with an Indian context to improve transparency in ESG ratings and mitigate conflict of interest between ESG rating providers. The committee requests that the public evaluate whether these parameters are appropriate and contextual to the Indian Domestic Markets for its ESG ratings.

Finally, the paper discusses ESG investing and ESG funds based on consultations with the Association of Mutual Funds in India (AMFI) and SEBI. To monitor and evaluate disclosures related to the engagement undertaken by AMCs for ESG schemes, including periodic portfolio disclosures and maintenance of ESG policy related to investments.

Schemes are also expected to reflect the nature and extent of the ESG focus related to investment objectives, investment strategy, positive screening, impact investing and sustainable goals.

Updapt Views:

Risks associated with climate change and ESG are significant from an economic and financial perspective. As a result of these proposals, the reliability of BRSR is expected to increase, greenwashing will be prevented, and the regulatory framework for ESG funds will be strengthened.

President Biden's administration sets a new goal to develop an EV charging Network

The Biden administration announced new standards to ensure that electric vehicle charging, funded by the Bipartisan Infrastructure law, is convenient, reliable and Made-in-America.

The Bipartisan Infrastructure Law (BIL) is a generational investment in the nation's infrastructure. And one of the most significant investments in bridges, transits, passenger rails and the EV infrastructure in US history.

The law also invests in lands and resources entrusted to the forest service, including many landscapes and watersheds. In the new announcement, the BIL invests $7.5 billion in EV charging, $10 billion in clean transportation, and over $7 billion in EV battery components, critical minerals, and materials.

The use of electric vehicles is growing worldwide, and there are now more than three million EVs on the road in America and over 130,000 public chargers. The new goal is to build a Made-in-America electric vehicle charging Network of 500,000 chargers on highways and communities by 2030.

With the commitments from major companies like Tesla, General Motors, EVgo, Pilot, Hertz and bp, among others, expanding the public charging ports makes reaching the nation's goal of an EV charging network easier.

To keep America on the path to net-zero emissions by 2050 and to create good-paying jobs along the way:

• The transportation department, in partnership with the department of energy, has finalized new standards to make charging EVs convenient and reliable for all Americans, no matter what car they drive.
• Effective immediately, all the EV chargers that the BIL funds are required to be built in the United States, including the final assembly and all manufacturing processes for any iron or steel.
• The Federal Highway Administration (FHWA) outlines that by July 2024, at least 55 per cent of the cost of all components must be manufactured domestically.
• The new Joint Office of Energy and Transportation is interested in issuing a funding opportunity for the ride and drive electric research and development program.
• The Department of Energy announced $7.4 million in funding for seven projects to develop innovative medium and heavy-duty EV charging and hydrogen corridor infrastructure plans.

Updapt Views:

EV charging infrastructure continues to play a significant role in the EV transition. With the increasing number of EVs globally, there is high demand for publicly available EV charging stations. We can undoubtedly expect more consumers as the infrastructure improves.

Advertising Standards Authority releases new guidance for sustainability claims in the UK

UK ad regulator, the Advertising Standards Authority (ASA), with its Committee of Advertising Practice (CAP), have announced new guidelines for advertisers making environmental sustainability claims to consumers.

Regarding environmental claims, carbon neutrality and net zero are most commonly claimed but have significantly less meaning. Examples include the greenest stoves on earth, 100% renewable energy, 100% recycled materials, 100% plastic free and so on.

To reform and standardize the definition of the claims, the CAP and BCAP have requested the below updates that are less likely to mislead.

• Information explaining the basis for the claims must help consumers understand it and avoid using unqualified "carbon neutral", "net zero", or similar claims.
• Marketers should ensure that the information they include is accurate and not let the consumers/customers no longer assume that manufactured products generate no or few emissions.
• Claims based on future goals relating to reaching net zero or achieving carbon neutrality should be based on a verifiable strategy to deliver the same.
• The offset claims should comply with the usual standards of evidence for objective claims set out in the guidance with the offset scheme.

Sections 11 and 9 of the CAP and the BCAP code further state:

• A high level of substantiation must support absolute claims. Comparative claims such as greener or friendlier can be justified, for example, if the advertised product provides a total environmental benefit over the marketer's previous product or competitor products and the basis of the comparison is explicit.
• Environmental claims must be based on the entire life cycle of the advertised product or service, unless the advertisement states otherwise, and must make clear the limits of the life cycle. Claims based on only part of an advertised product or service's life cycle must not mislead consumers about the product or service's total environmental impact.
• Advertisements must not suggest that their claims are universally accepted if a significant division of informed or scientific opinion exists.

Even from the social responsibility point of view marketing and advertisements must be prepared with a sense of responsibility to the audience and society and must not encourage behaviour grossly prejudicial to protect the environment.

Updapt Views:

Advertising plays a huge role in influencing consumer behaviour. The ads explicitly or implicitly must address the relationship between a product or service and the natural environment. However, with the current practices, environmental claims are likely to mislead if the claim's basis needs to be clarified. So, introducing stricter guidelines will also avoid greenwashing.

The European Commission approved over $550 million for ArcelorMittal, a steel and mining company

ArcelorMittal, a global steelmaking company, has committed to achieving net zero emissions by 2050. It will receive over $550 million to advance efforts to decarbonize steelmaking as part of state aid projects in Germany and Spain.

The state aid in Spain will support the construction of a renewable hydrogen-based direct reduced iron plan, which, together with a new electric arc furnace, will substitute the Gijon plant's blast furnace.

Steel produced using electric arc furnace technology is expected to avoid the release of over 70 million tonnes of carbon dioxide with recycled ferrous scrap as the primary raw material. Over time, the plant will phase out natural gas in the gas mix using renewable hydrogen with syngas produced from waste and metallurgical gases.

The state aid in Germany consists of a $55 million direct grant to support constructing and installing a hydrogen production demonstration facility. The project's main objective is to reduce ArcelorMittal's greenhouse gas emissions in its green steel production processes while avoiding the release of over 700,000 tonnes of carbon dioxide.

Along with the State Aid, the commission will support several EU initiatives, including the EU hydrogen strategy, including plans to rapidly scale hydrogen production capabilities in Europe, as well as the European Green Deal, the EU strategy to achieve a climate-neutral economy by 2050, and RePowerEU, the EU plan to end its reliance on Russian fossil fuels.

Updapt Views:

Steelmaking releases more than 3 billion metric tons of carbon dioxide yearly, making it the industrial material with the most major climate impact. The steel industry must reduce its carbon footprint to help reduce global warming. Steel makers worldwide must invest in alternative metal-making technologies, such as hydrogen or electrochemistry, to reduce iron oxides to steel.

Global bond forecast for 2023 reports growth in GSSSB issuance

According to research from one of the most extensive rating agencies, the global bond issuance market is estimated to have a modest growth of 2.5% in 2023.

The Global Green, Social, Sustainable, and sustainability-linked bonds (GSSSB) are categorised as using proceeds instruments (green bonds, social bonds) and the sustainability-linked bonds, including the Environmental Finances Bond Database for non-financial corporates, sovereigns, financial institutions, and international public finance issuers.

Key drivers and figures of the growth include regulation, policy, and transparency initiatives that may influence investor demand, the need for accelerating climate finance and calls for more investment in climate adaptation and resilience.

Issuance for the GSSSB asset class is set to reach $900 billion - $1 trillion in 2023 with 14% - 16% overall market share, while financial services will continue to gain market share with green bonds leading in the category.

The non-financial corporate category is expected to see more diversification in sector, geography, and size of issuers. As per the Inflation Reduction Act in the US and Europe's REPowerEU, the energy sector could play a critical role in the growth with the unprecedented energy transition financing that needs to be fostered by government plans.

Updapt Views:

Regulators must ensure the credibility of sustainability-linked bonds and not restrict them to specific projects that might help other sectors and small issuers participate and stay consistent with the growth.

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