The International Financial Services Centres Authority (IFSCA) recently submitted its report on Sustainable Finance, suggesting the development of the carbon market among others. The concept of sustainable finance is vital in today’s economic world. It involves making investment decisions that consider the environmental, social, and governance (ESG) factors of an economic activity or project.
Understanding Sustainable Finance
Environmental factors in sustainable finance include actions towards mitigating the climate crisis or the use of sustainable resources. Social factors encompass human rights, animal rights, consumer protection, and the promotion of diverse hiring practices. On the other hand, governance factors relate to the management, employee relations, and pay practices of both public and private organizations.
The Committee’s Recommendations
The committee recommended several measures, such as the development of a voluntary carbon market, framework for transition bonds, facilitating de-risking mechanisms, and promoting a regulatory sandbox for green fintech. It also proposed the creation of a global climate alliance. A dedicated platform for sustainable lending for Micro, Small and Medium Enterprises (MSMEs) was suggested. Furthermore, it encouraged the use of innovative instruments like catastrophe bonds, municipal bonds, green securitisation, and blended finance.
Role of IFSCA
Established in 2020 under the International Financial Services Centres Authority Act, 2019, IFSCA is headquartered at Gujarat International. Finance Tec-City (GIFT) City in Gandhinagar, Gujarat. The IFSCA is responsible for the development and regulation of financial products, services, and institutions. It’s members, appointed by the central government, play a crucial role in capacity building which lays the foundation for greening the financial system.
Understanding Carbon Markets
Carbon markets allow for buying and selling of carbon emissions with the objective of reducing global emissions. Carbon markets can potentially deliver emissions reductions over and above what countries are doing on their own. For instance, technology upgradation and emission reduction of a brick kiln in India can be achieved through investments or by offering emission reduction for sale, known as carbon credits.
Indian Government’s Initiatives
The Indian Government has taken several steps towards sustainable finance. The Perform Achieve and Trade (PAT) scheme targets carbon emission reduction across 13 energy-intensive sectors. The government also permits 100% Foreign Direct Investment (FDI) in the renewable energy sector. Under the Paris Agreement adopted in 2015, India pledged to reduce the emissions intensity of its Gross Domestic Product (GDP) by 33-35% till 2030 from the 2005 levels, achieve about 40% cumulative electric power installed capacity from non-fossil fuel-based resources by 2030, and create an additional carbon sink of 2.5-3 billion tonnes of carbon dioxide equivalent through additional forest and tree cover by 2030.
UPSC Civil Services Examination: Prelims and Mains Questions
Civil Service aspirants can refer to the following previous year questions related to this topic. These include the concept of carbon credit and its origin (Prelims 2009), and the relevance of carbon credits and clean development mechanisms with respect to India’s energy needs for economic growth (Mains 2014). Further understanding about landmark treaties like the Kyoto Protocol, Earth Summit in Rio de Janeiro, Montreal Protocol, and outcomes of G-8 Summit, Heiligendamm will aid in comprehensive preparation.
Conclusion
In achieving economic growth coupled with sustainability, the measures suggested in the Sustainable Finance report and the forthcoming actions under India’s Nationally Determined Contribution (NDC) under the Paris Agreement will play a significant role.
