In recent years, the demand for environmental, social and governance (ESG) data and reporting solutions has surged, reflecting the increasing importance of ESG factors in investment and business decision-making.
Key trends, such as the "China plus one" strategy and supply chain transformations, are fueling this demand, according to Rohit Kodancha, co-founder and chief revenue officer of ESG Data and Solutions - ESGDS.
As per ESGDS, an evaluation of over 1100 companies found that overall ~58% of the companies disclose material ESG (environmental, social and governance) information.
Large-cap companies disclose over 76% of material indicators in India, and mid-cap companies disclose close to 61% but for small-caps disclosure rate drops to 49% for material indicators.
"In 2021, Asia accounted for 42% of global GDP, surpassing other regions, and represented over 50% of global goods trade. The post-COVID era has witnessed a strategic shift as global companies adopt the "China plus one" approach, diversifying manufacturing outside China. This transition presents immense opportunities for countries in the Asia-Pacific, particularly India, which already boasts a robust IT and services sector, a skilled population, and a growing economy fuelled by internal consumption," Kodancha said.
Additionally, corporate responsibility, including ESG aspects, has become a critical criterion for supplier selection, with supply chain emissions often surpassing direct emissions.
This growing demand for ESG data solutions helps businesses assess supplier performance, demonstrate transparency, and attract responsible investors.
Looking ahead, the demand is expected to rise further as companies strive to meet stringent ESG standards and mitigate environmental and social risks for long-term success in an evolving global landscape, stated Kodancha.
The Securities and Exchange Board of India(SEBI) introduced a framework for green debt securities in 2017 and mandated sustainability reporting for the top 1000 listed entities.
The government's Economic Survey emphasizes the need for significant investments in sustainable development, and 15 Indian corporations have already issued green bonds, as per India's report on the Long-Term Low Emission Development Strategy to the United Nations Framework Convention on Climate Change (UNFCCC).
The Union Budget 2022-23 also announced the issuance of Sovereign Green Bonds, and the RBI has published guidelines for banks to measure and perform scenario analysis.
Overall, India is making strides in promoting ESG regulations and green finance, adds Kodancha.
Meanwhile, he also said that Sustainability-linked loans (SLLs) have become popular globally, reaching a peak of $500 billion in 2021.
However, due to geopolitical tensions, the issuance has slowed down to around $108 billion in the first eight months of 2023.
SLLs are the second largest type of ESG debt after green bonds, with $1.2 trillion outstanding worldwide.
Most of these loans are held by European investment-grade companies.
Unlike traditional loans that have a fixed interest rate, SLLs have an interest rate that can be adjusted based on the borrower's performance in meeting specific environmental, social, and governance (ESG) targets.
For example, if a borrower successfully achieves their ESG goals, they can receive a discount on the interest rate. On the other hand, if they fail to meet the targets, they may face a penalty.
While the SLL market is still developing and loan details are not always publicly available, some examples include electricity supplier Landsvirkjun, which could potentially lower its interest rate by 2.5 basis points, and Quadient, which negotiated a pricing adjustment of 2 basis points.
"In India, Vedanta raised $250 million in SLL earlier this year, with the loans granted based on specific performance parameters for decarbonization and safety," said Kodancha.
Overall, SLLs provide financial incentives for companies to improve their ESG performance and contribute to a more sustainable future, he added.