Sustainable Finance for the Future

Sustainable Finance for the Future

• A Committee on Sustainable Finance, appointed by the International Financial Services Centres Authority (IFSCA), has submitted its report on Sustainable Finance, which includes recommendations for the development of the carbon market, among other things.

What exactly is Sustainable Finance?

• Sustainable finance is defined as investment decisions that consider an economic activity's or project's environmental, social, and governance (ESG) factors.
• Environmental factors include climate change mitigation and the use of renewable resources.
• Human and animal rights, as well as consumer protection and diverse hiring practises, are examples of social factors.
• The management, employee relations, and compensation practises of both public and private organisations are referred to as governance factors.

What are the Committee's Recommendations?

• Among other things, this includes developing a voluntary carbon market, a framework for transition bonds, enabling de-risking mechanisms, promoting a regulatory sandbox for green fintech, and facilitating the formation of a global climate alliance.
• Establishment of a dedicated MSME (Micro, Small, and Medium Enterprises) lending platform for long-term lending.
• Facilitating the use of novel instruments such as catastrophe bonds, municipal bonds, green securitization, and blended finance.
• IFSC aggregation facilities, impact funds, green equity, and so on.
• IFSCA must play an important role in capacity building, which will lay the groundwork for greening the financial system.

What exactly is IFSCA?

• The International Financial Services Centres Authority Act of 2019 established the IFSCA in 2020.
• Its headquarters are in Gandhinagar, Gujarat, at GIFT (Gujarat International. Finance Tec-City).
• The International Financial Services Centre (IFSC) in India is a unified authority for the development and regulation of financial products, financial services, and financial institutions.
• The GIFT IFSC is currently India's first international financial services centre.
• Prior to the establishment of IFSCA, domestic financial regulators such as the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA) regulated IFSC business.
• The International Financial Services Centres Authority is made up of nine members who are appointed by the central government.
• They include the authority's chairperson, representatives from the RBI, SEBI, IRDAI, and PFRDA, as well as two representatives from the Ministry of Finance. A Selection Committee also recommends two additional members for appointment.
• Term: All members of the IFSCA serve three-year terms that are renewable.

What exactly are Carbon Markets?

• Carbon markets enable the purchase and sale of carbon emissions with the goal of reducing global emissions.
• Carbon markets existed under the Kyoto Protocol, which will be replaced in 2020 by the Paris Agreement.
• Carbon markets have the potential to reduce emissions above and beyond what countries are doing on their own.
• For example, in India, a brick kiln's technology can be upgraded and emissions reduced in two ways:
• A developed country that is unable to meet its reduction target can provide money or technology to an Indian brick kiln and thus claim emission reduction as its own.
• Alternatively, the kiln can invest and then sell the emission reductions, known as carbon credits. Another party, struggling to meet their own goals, can purchase these credits and present them as their own.

What are the Indian Government Initiatives Related to This?

• PAT Scheme: The government has launched the PAT scheme, which aims to reduce carbon emissions in 13 energy-intensive sectors.
• Encourage Foreign Capital: Under the automatic route, the government has allowed up to 100 percent FDI in the renewable energy sector.
• Encouraging Renewable energy: The government has waived inter-state Transmission System (ISTS) charges for projects involving the inter-state sale of solar and wind power.
• Making plans for the Renewable Purchase Obligation (RPO) and establishing Renewable Energy Parks
• India's Nationally Determined Contribution (NDC): Under the Paris Agreement, which was adopted by signatory countries in 2015, India submitted a Nationally Determined Contribution (NDC) with quantified targets to reduce the emissions intensity of its Gross Domestic Product (GDP) by 33-35% by 2030 from 2005 levels, to achieve approximately 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030, and to create an additional carbon sin

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