Investors in India should work closely alongside government agencies and development finance institutions to ensure a just transition while scaling the funding of sustainable energy infrastructure, Amundi’s latest research paper has concluded.
According to the report – Investing in India’s energy future: a just transition challenge – India is experiencing an era of unparalleled growth, with the energy transition expected to have a profound impact on its economy and the environment.
However, India’s transition needs to be handled in a ‘just’ manner, with global studies indicating a potential for job losses in certain sectors due to the adoption of renewable energy. Meanwhile, the absence of property rights in some Indian territories has resulted in many farmers losing their land without any compensation from the state or the firms involved.
Amundi’s report stated: “A critical point will be represented by societal obstacles, like gender inequality, but it is imperative to ensure that each social class is not left behind through reskilling initiatives, workforce planning and social and workplace protection.”
The research outlines three priority actions that need to be achieved at every level of the value chain.
First, investors should anticipate, access and address the social risks of the transition to avoid the burden of change being borne by marginalised communities.
Second, they should identify and enable social opportunities, with emphasis placed on meeting socioeconomic goals alongside financial returns in the long term. This should involve reducing inequality, creating good living standards and lifting communities and consumers from poverty.
Finally, investors should enable meaningful dialogue and participation in net zero planning by supporting social dialogue between employers and workers, as well as wider stakeholder engagement.
“Achieving net zero by 2070 is a pivotal aspect of India’s sustainable growth journey, not only for the country but as part of global efforts to reduce emissions,” Caroline Le Meaux, global head of ESG research, engagement and voting at Amundi, commented.
“India is currently the third largest CO2 emitter in the world, with an economy that is still heavily reliant on fossil fuels – especially coal – and a rapidly growing energy demand, but has the means to make significant changes which will also benefit it economically. This research underscores the importance of social inclusivity and collaboration between asset owners and public entities in achieving India’s ambitious goals.”
Attracting investment
To foster global investors’ support of the transition, the Securities and Exchange Board of India has updated the regulatory regime on ESG investing, imposing higher disclosure standards and more transparency on India’s largest companies.
Moreover, the report highlighted the newly implemented green bond framework has laid the foundation for a robust India green bond market, which stands as the second largest among emerging markets – surpassed only by Brazil.
The private sector is responsible for 84% of total issuance, with the utilities sector representing the largest destination of the proceeds raised.
The report noted asset managers “are likely to be encouraged” by the fact India is expected to develop standardised and verified processes for their ESG investments over the next five years. However, this hinges on its capacity to overcome key challenges such as greenwashing concerns and the ability to attract and direct capital towards green technologies.
Further, there have been no commitments from the government to phase out coal, despite the fuel accounting for the highest portion of India’s emissions. It is unlikely to be an easy task, given the swift pace at which people are emerging out of poverty and the resulting rise in energy demand.
