Environmental, Social, and Governance (ESG): Key expectations from the Union Budget

By Sambitosh Mohapatra, Partner and Leader, ESG, PwC India

1. India has made the following commitments at the Conference of the Parties (COP26):
   • To raise the country’s non-fossil fuel-based energy capacity to 500 GW by 2030
   • To meet 50% of the country’s energy requirements using renewable energy sources by 2030
   • To reduce the total projected carbon emission by 1 billion tonnes between now and 2030
   • To reduce 45% of the carbon intensity by 2030
   • To become carbon neutral and achieve net-zero emissions by 2070
   • Achieving the aforesaid objectives is conditional on availability and access to enabling technology and financing (estimated at US$ 1 trillion) at the necessary speed and scale. 
2. Increased focus on the non-financial performance of corporate India and its impact in realising the country’s Sustainable Development Goals (SDGs) is expected.
   • Environmental, social and governance (ESG) parameters have gained greater importance in the Government and private sector and are also high on the agenda of market regulators.
   • The Securities and Exchange Board of India (SEBI) has introduced Business Responsibility and Sustainability Reporting (BRSR) regulations, which will become mandatory for the top 1,000 listed companies (by market capitalisation) from FY23.
   • Draft National Resource Efficiency Policy is under stakeholder consultation with an objective to mainstream resource efficiency across all sectors and regions of the country.
   • National Strategy for Financial Inclusion 2019–2024 was published by the Reserve Bank of India (RBI) to accelerate financial inclusion, thereby promoting economic well-being, prosperity and sustainable development.

Key expectations from the Budget – ESG 

1. Incorporate climate-, resource- and gender-responsive budgeting to support and deliver post-pandemic green, inclusive and equitable rebuilding of the economy.
2. Ensure continued focus on improving ease of living through dignity of labour and living wages. This can be done by providing increased access to education, upskilling, life and health insurance, and employment yielding minimum living wages through enhanced budgetary allocations and institutional capacity building. 
3. Develop a social protection fund to meet exigencies and mitigate the disproportionate adverse impacts (loss of livelihood, relocation and increased cost of living) of the choices and initiatives to meet environmental and sustainability commitments on the vulnerable and poorer sections of the society.
4. Introduce fiscal and/or tax incentives for corporates demonstrating greater compliance to corporate social responsibility (CSR) rules to boost the ESG agenda in corporates.
5. Incorporate ESG parameters when structuring incentives, allocating resources and in procurement processes across various sectors and institutions. 
6. Stimulate an ecosystem promoting research and innovation, through additional budgetary allocation, viability-based funding and institutional capacity building for cleantech. This includes carbon capture, utilisation and storage (CCUs), hydrogen, transportation, grid flexibility, afforestation and nature-based solutions.
7. Focus on reorienting manufacturing and promoting a circular economy for product lifecycle extensions – including redesign, reuse and recycle. 
8. Incentivise the start-up ecosystem in the country to focus on climate technology, FinTech, data privacy and cyber security solutions by making focused allocations to attract start-up promoters towards these areas and enhancing India’s position on the Global Innovation Index.
9. Create an enabling sustainable financial ecosystem by initiating relevant policies and institutional and regulatory frameworks for attracting and allocating capital for meeting the SDGs. Establishing a voluntary carbon market in India will also enable efficient fund flows towards achieving India’s climate ambitions.
10. Enhance mechanisms for corporate governance to improve ease of doing business and access to sustainable finance. This can be done by strengthening governance compliance systems, leveraging technology for monitoring compliance, and enhancing the independence and capabilities of independent directors – especially on the non-financial dimensions of ESG performance.