In order to reach net zero by the mid-century, the latest budget has established a path for Indian businesses to progressively look at sustainability solutions as an economic imperative.
With the 2022 budget, the Finance Minister has made it clear that the Indian economy will follow a low-carbon path. There is a long-term vision and there are incentives that support PM Narendra Modi’s ambitious announcements at COP26 in Glasgow while outlining long-term and short-term milestones towards a net zero future.
Indian businesses too are undergoing significant changes amidst externalities such as climate change, finite resource availability, technology disruptions, emerging linked ecosystems, and evolving stakeholder expectations. The UN has calculated that to limit warming at 1.5 degrees celsius, countries “in this critical decade” must halve their carbon dioxide emissions by 2030 to reach net zero around mid- century.
The Intergovernmental Panel on Climate Change (IPCC) in its 6th Assessment Report has also emphasized the fact that earth has already warmed 1.1 above preindustrial level and may surpass 1.5 by 2040 without any proper action. Frequent and severe extreme events ranging from flash floods, drought, heatwaves, wildfires, precipitation, and tropical cyclones are a result of drastic climate change.
[box type=”note” align=”” class=”” width=””]It is critical that immediate, sustained, and rapid actions are taken to curb greenhouse gas emissions to limit global warming. In such a scenario, it was imperative that this year’s budget focused on Environmental, Social and Governance (ESG) issues by providing tax and non-tax incentives needed to promote a green economy.[/box]
With the corporate tax slabs being revised, companies are in a better position to enhance their sustainable offerings. Apart from the main highlight of this year’s budget: Gati Shakti — a digital platform that aims to bring 16 ministries, including railways and roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects, clean and sustainability mobility related provisions have also taken a forefront. Particularly encouraging were the budget highlights of infrastructure for special mobility zone and battery infrastructure for EVs.
[box type=”shadow” align=”” class=”” width=””]Chaitanya Kalia, Partner and National Leader, Climate Change & Sustainability Services (CCaSS), EY India says, “In this budget, the government has taken climate change aspects very seriously. There are provisions on renewable energy in several sectors. On the infrastructure side, sovereign Green Bonds will be issued for mobilizing resources for green infrastructure. Overall, as a country we are trying to move towards a green economy as this budget aims to make India cleaner and greener.”[/box]
Already corporates have started looking at sustainability solutions as a business imperative and are setting up new factories for solar panels, batteries, green hydrogen, and fuel cells. The government has also announced a bouquet of incentives to give impetus — one such is allocation of Rs 19,500 crore for Production Linked Incentive for manufacture of high efficiency module with priority to fully integrated manufacturing units from polysilicon to solar PV modules.
The government is also giving equal importance to waste reduction and circular economy. It has highlighted 10 important sectors that are on priority in the scope of circular economy. Government has plans to help on the cross functional waste management process, give impetus to companies working in reverse logistics, technology upgradation and integration with informal sector.
India has also been very proactive with respect to strengthening mechanisms on sustainability reporting including moves by the market regulator.
With Business Responsibility and Sustainability Report (BRSR) being mandated for top 1000 companies by market capitalization in FY 22-23, and with further notice from SEBI urging asset management funds to invest only in firms that publish BRSR will further strengthen this commitment.
Not just in India, but globally, also regulations pertaining to disclosures are undergoing a paradigm shift. With the Sustainable Finance Disclosure Regulation (SFDR) coming into action across Europe, it will be easier for institutional asset owners and retail clients to understand, compare, and monitor the sustainability characteristics of investment funds by standardizing sustainability disclosures.
Under the SFDR, companies must make both, company and product-level disclosures about the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social factors, and sustainable investment objectives.
This budget is the financial backbone of the vision that has been laid down in COP26. Giving clean tech financial viability, this incentive will also open up a lot of avenues for the job market. Formalizing informal sectors with reference to waste management will also help one pressing issue – that is human and labor rights in Indian waste management that concerns ragpickers.
[box type=”shadow” align=”” class=”” width=””]Damandeep Singh Ahluwalia, Associate Partner, Climate Change and Sustainability Services (CCaSS), EY India said, “It is heartening to note the Finance Minister underscoring the need for Climate Action to attain its vision for India@100 while allocating resources and provisions. The increase in capex for infrastructure growth along with incentives for battery swapping help chart the low carbon path. An additional allocation of Rs 19,500 crore for PLI (Production Linked Incentive) for manufacture of high efficiency modules will boost the solar power growth. The policy steer towards ‘Circular Economy transition’ with action plans for ten sectors such as electronic waste, end-of-life vehicles, used oil waste, and toxic and hazardous industrial waste should be set in motion at the earliest.”[/box]
Budget 2022 ushers in a new dawn for sustainable development in India. In line with our commitment at COP26, we have strengthened the financial infrastructure through provisions in clean energy transition, battery swapping policy and circular economy. This will encourage the business and public sectors, as well as the general public, to make more responsible decisions. The new budget has been in the direction to ensure India acts responsibly to create the right impact.
[author title=”Author” image=”http://”]Shailesh Tyagi, Partner, Climate Change & Sustainability Services (CCaSS), EY India[/author]