Tag: climate change

How you can make your home climate-proof

Personal Finance

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The effects of climate change are strongly and clearly upon us — severe rains, landslides, hurricanes to scorching heat.

The recent report by the Intergovernmental Panel on Climate Change (IPCC) notes that South Asia is very vulnerable and India may suffer more frequent and intense heat waves, extreme rainfall events,erratic monsoons and cyclonic activity in the coming decades.

As homes offer protection against the elements, there is also a need to have a shift in how we approach residential property. Home sales and prices are not yet impacted by climate change considerations, except in a few coastal regions.

Rising risks

Data from the IPCC show three scenarios of mean temperature rise in South Asia – 1.9º C, 2.9º C and 5.1º C. Besides higher average, there will also be more days of extreme heat — over 40º C temperature. The best-case scenario projected is a 50 per cent increase, from about 40 days in a year now, and the worst case is up to three months of extreme heat.

This change will push up cooling costs for homes. In fact, analysis by the International Energy Agency shows that the share of electricity demand by homes, mainly for cooling, will nearly triple by 2030 globally.

The other hazard is cyclonic storms. Analysis shows that the Arabian Sea is likely to be most affected and in the past decade the cyclonic systems in the region already increased from two to three. The storm intensity, too, is expected to increase.

Floods are an existing danger and data from the Geological Survey of India show that 12.5 per cent of the country are major flood-prone areas. Coastal regions – nearly 7,000 km long – face the risk of water inundation from cyclonic storms. Rising sea levels also pose a threat, though the immediate effect may be limited to a few low-lying places.

Flash floods from glacier run-offs will be a peril for those in the Himalayan region.

Unpredictable monsoon, leading to not just high precipitation, but also water-shortage is also another factor to consider for some regions.

How to manage

While the prediction is dire, there are at least three ways in which you can tackle these risks from a housing perspective. The first line of defence is to consider locations that are relatively safer.

For example, you can refer to the vulnerability atlas of India (https://vai.bmtpc.org/) published by the Building Materials and Technology Promotion Council . However, it is likely that you may have limited options in picking a location, due to career or other considerations.

You can still find places in the city that are not low-lying, have better water drainage systems and choose homes that are built on an elevation. Be sure to inspect the area during the monsoon to see how it fares.

Even with that, you must buy insurance to cover for any damages.

Your losses can run high — the 2015 Chennai floods led to total claims of about ₹4,800-5,000 crore and the Uttarakhand flash floods saw insurance companies paying out claims amounting to ₹1,500 crore.

Flood insurance is a subpart of regular home insurance, and if there is potential for flood, you must opt for it. Make sure the insurance cover is comprehensive and includes multiple calamities. In general, there are two types of cover – structural and content.

While content plan typically covers damages to possessions due to fire and flood, structural coverage also includes damage to structure due to storm, lightning and others.

Given that the losses may be high, do not skimp on the insured amount.

Also, make it a point to check the amount during renewal, as it may alter over the years, based on the policy. For instance, the plan may be based either on the reinstatement value or on the market value of the property to be insured.

The former considers the cost of re-constructing the structure after damage while the later deducts depreciation, based on the usage of the building.

Four, pay attention to the thermal comfort of the home. This includes analysing the layout of the house, green cover and choice of building materials used.

These factors can together make it cooler by a few degrees. You can also look at solar and wind power solutions, to reduce your power bill.

The author is an independent financial consultant

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Hard choices loom for finance chiefs and their climate pledges, BFSI News, ET BFSI

Personal Finance

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Washington, Oct 15, 2021 -In speeches and communiques from top finance officials at the annual meetings of the IMF and World Bank this week, one word was ubiquitous: climate.

Leaders of the institutions and government ministers pledged action to meet the global climate goals of keeping warning below 1.5 degrees Celsius and reaching net zero emissions by 2050, with an eye towards next month’s COP26 climate change summit.

“I’m afraid it is time to roll up our sleeves and detail our plan of actions,” Britain’s Prince Charles said at a World Bank event Thursday.

“With action on climate change, biodiversity loss and a just transition more urgent than ever, I can only encourage us all to get to work and solve this problem.”

But behind the rhetoric lies the harsh reality of the extent of the work left to do to meet the goals, and the rancor around the issue.

Washington leaned on multilateral lenders worldwide to step up financing of climate friendly projects, even as activists launched a salvo at the World Bank president.

Meanwhile, the world’s largest asset manager warned that expensive investments are necessary to prevent catastrophe.

“Rich countries must put more taxpayer money to work in driving the net-zero transition abroad,” BlackRock chief Larry Fink wrote in The New York Times on Wednesday.

Reaching the net-zero emissions goal will require $1 trillion a year in investments aimed at poor countries, which Fink estimates would need $100 billion in yearly subsidies to be viable.

“While the figure seems daunting, especially as the world is recovering from the Covid pandemic, a failure to invest now will lead to greater costs later,” he said.

– ‘Personnel is policy’ – The meetings held semi-virtually in Washington came amid growing alarm over what unchecked climate change will do to the planet.

The World Bank last month in a disturbing report warned that reduced agricultural output, water scarcity, rising sea levels and other adverse effects of climate change could cause up to 216 million people to leave their homes and migrate within their own countries by 2050.

An IMF study estimated that direct and indirect subsidies of fossil fuels added up to $5.9 trillion or about 6.8 percent of global GDP in 2020, and helped undercut climate goals by keeping gas cheap.

While officials at the two Washington-based multilateral lenders insisted they are razor focused on climate change, not all were convinced.

On Thursday, 77 advocacy groups asked for World Bank President David Malpass to step aside.

Malpass has emphasized the World’s Bank’s climate investment and said it provides half of all multilateral lending towards such projects — a huge change from years past when the development lender financed controversial projects, criticized for their environmental impact.

But the groups said that since the 2015 Paris climate accord, the institution has steered $12 billion towards fossil fuel.

“Personnel is policy: The World Bank needs leadership that will support countries with real green and inclusive development pathways,” said Luisa Galvao of Friends of the Earth US, which signed the petition.

– Leaning on international banks – The actions of the United States during the meetings were closely watched, since Washington hold the most voting power at the organizations, but the world’s largest economy also is a major carbon emitter.

President Joe Biden however has promised a government-wide offensive to tackle climate change.

US Treasury Secretary Janet Yellen this week convened leaders of several multilateral lenders — including the World Bank and developments banks in Europe, Latin America, Asia and Africa — and pressed them to dedicate more capital towards projects intended to mitigate climate change.

She also announced that her department would study how climate change is affecting communities and households in the United States, which this year alone has seen deadly winter storms strike Texas and the Midwest, wildfires roast California and successive hurricanes pummel the East Coast.

But while the White House now has a greater emphasis on addressing what Yellen called an “existential threat,” agreement among the greater US political class on what to do about it remains elusive.

Biden has proposed two spending bills in Congress that could direct historic sums of money towards improving the country’s climate resiliency and cutting emissions, but they are mired in the rancorous and divided US Congress.

cs/hs



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Khara, BFSI News, ET BFSI

Banking & Finance

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-By Nidhi Chugh & Ishwari Chavan

Dinesh Khara

State Bank of India will soon roll out its Environmental, Social, and Governance structure, with an aim to increase its exposure to climate-change-mitigation companies, such as renewable energy, by extending credit relaxations, said Chairman Dinesh Khara.

For loans exceeding Rs 50 crore, borrowers are assigned scores on the basis of their performance on various ESG parameters, Khara said at the ESG India Leadership Awards 2021 on Thursday.

“The bank acknowledges the increasing risk of climate change that is embedded in its credit portfolio, and is in the process of devising a framework for climate risk management. We are also in the process of identifying and managing risk arising out of ESG practices, to increase our exposure to climate-change-mitigation companies, which includes relaxation in extending credit facilities to borrowers in the renewable energy sector,” Khara said.

Unless banks are able to provide adequate credit to green projects and measure risk in their portfolio, the bank’s depositors and shareholders will continue to carry ESG risk that can erode returns, Khara said.

According to experts, ESG investors are likely to face risks of small cap and single stock investments, and interest rate and inflation.

Khara spoke of the bank’s plan to embrace ESG investments.
Khara spoke of the bank’s plan to embrace ESG investments.

SBI aims to be carbon neutral by 2030, and in line with this target the bank has taken a number of initiatives to reduce its carbon impact, including installation of solar power plants, tree plantation, organic farming and banning the use of single use plastic, Khara said.

The bank has taken a two-fold approach to reach its 2030 goal – managing the impact of its own operations and directing its funding to climate-change-mitigation sectors, he added.

On India’s approach towards sustainable growth, Khara said the banking sector should accelerate green lending and report their ESG portfolio performance. India should define its green finance by combining international practices, developing its set of principles, and obtaining stakeholders’ views.

“To support acceleration in green financing, a number of structural changes will be needed in the traditional lending approach, including evaluation and certification of the green credentials of each project, understanding of the corporate roadmap to achieve net zero, and how projects will contribute to the achievement of net zero emissions,” he said.

Meanwhile, at the award function, Infosys emerged as a ESG leader across industries, while Axis Bank led the pack in transparency and disclosures, said ESGRisk.ai, the organiser, in a note.



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What is sustainable finance, and how has it been faring?, BFSI News, ET BFSI

Banking & Finance

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-By Ishwari Chavan

Conventionally, investors have evaluated their performance and made decisions solely on financial measures and have neglected environmental and social impacts that come along with it.

Sustainable finance gained interest from the mid-2010s, especially after the Paris Climate Protection Agreement, 2015. In the agreement, 195 countries, including India, have committed to drive economic growth in a climate-friendly manner and reduce greenhouse gas emissions.

Environmental, social, and governance (ESG) issues, along with the associated opportunities and risks, are becoming more relevant for financial institutions. A common way to opt for sustainable finance is by investing in segments such as energy generation, which include solar photovoltaics, on and offshore wind, hydropower and broader energy services.

Here’s a rundown of all that you need to know.

What is sustainable finance?

Sustainable finance includes making business or investment decisions that take into consideration not only financial returns but also environmental, social and governance (ESG) factors.

Sustainable finance is defined as supporting economic growth while reducing pressures on the environment and taking into account social and corporate governance aspects, such as inequality, human rights, management structures and executive remuneration. Environmental considerations, including climate mitigation and adaptation, conservation of biodiversity and circular economy, are under its bandwidth.

One of the key objectives of sustainable finance is to improve economic efficiency on a long-term basis.

What does sustainable finance include?

Operational and labelling standards

1. Green labelled financial securities, products and services

2. Social-labelled financial securities, products and services

3. Sustainability- labelled financial securities, products and services

4. Unlabelled multilateral development banks financing of sustainability oriented projects

Industry oriented frameworks

1. Inclusion of ESG considerations in investment decisions

2. Sustainable and responsible investment (SRI)

3. Impact finance and impact investing

4. Equator principles-aligned projects

Wider Policy framework

1. Sustainable development goals-aligned finance (SDG Finance)

2. Principles of positive impact finance-aligned investments

3. Principles for responsible banking-aligned finance

4. Paris agreement-aligned finance

5. Climate Finance and Green Finance

6. Government sustainability related spending programmes

What is sustainable finance, and how has it been faring?
How has sustainable finance fared around the world so far?

According to the Global Sustainable Investment Alliance, at the start of 2020, global sustainable investment reached $35.3 trillion in five major markets – US, Canada, Japan, Australasia and Europe – reporting a 15% increase in the past two years (2018-2020).
What is sustainable finance, and how has it been faring?Source: Global Sustainable Investment Alliance

Sustainable investment assets under management make up 35.9% of total assets under management, up from 33.4% in 2018.

What is sustainable finance, and how has it been faring?Sustainable investing assets by strategy & region 2020 (Source: Global Sustainable Investment Alliance)

Sustainable investment assets continue to grow in most regions, with Canada experiencing the largest increase in absolute terms over the past two years (48%), followed by the US (42%), Japan (34%) and Australasia (25%) from 2018 to 2020.

What is sustainable finance, and how has it been faring?Global growth of sustainable investing strategies 2016-2020 (Source: Global Sustainable Investment Alliance)

According to the Global Sustainable Investment Alliance, at the start of 2020, global sustainable investment reached $35.3 trillion in five major markets – US, Canada, Japan, Australasia and Europe – reporting a 15% increase in the past two years (2018-2020).



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Climate risks can impact the financial sector: RBI Deputy Governor

Banking & Finance

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Both climate change and the transition to a carbon-neutral economy have the potential to affect the economy and by extension, general welfare of the people, according to M Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI).

Hence, there is a clear benefit to acting early and ensuring an orderly transition.

“While transition costs may be higher in the short term, they are likely to trend much lower in the long run when compared to the costs of unrestrained climate deterioration.

“It is thus, vital to make the financial system more resilient in the face of the potential costs of extreme weather events,” Rao said at a recent CAFRAL Virtual Conference on Green and Sustainable Finance.

Climate risks can impact the financial sector through two broad channels — physical and transition risks, he added.

Physical risks mean economic costs and financial losses resulting from the increasing severity and frequency of extreme weather events and long-term climate change.

Transition risks arise in the process of adjustment towards a low-carbon economy.

“It is, therefore, important to understand these risk drivers which are likely to affect the financial firms,” the Deputy Governor said.

Rao observed that the challenge before the RBI is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development.

Recently, RBI set up a Sustainable Finance Group (SFG) within the Department of Regulation to spearhead its efforts and regulatory initiatives in the areas of sustainable finance and climate risk.

The Group will be advising regulated entities to have a strategy to address climate change risks and appropriate governance structures to effectively manage them from a micro-prudential perspective and exploring forward looking tools like climate scenario analysis and stress testing for assessing climate-related risks, among others.

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Global banks push ESG loans in India as climate change threat worsens, BFSI News, ET BFSI

Banking & Finance

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As the climate change threat worsens, global banks are pushing ESG (environmental, social and governance) compliant loans and bonds in India.

A huge pool of global funds is waiting to invest in these securities, which is a big opportunity for such projects in India.

Bank of America (BofA) is offering a 5-7.5 basis points incentive or levying a penalty based on the success or failure of companies in achieving their green targets as stated in the loan documents.

Earlier this year, BofA helped agri and industrial chemicals maker UPL raise a $750 million sustainability-linked loan. This will be a part of the global $1.5 trillion sustainable finance commitment that the US’ second-largest bank has made to be achieved by 2030, in which India will play an important role.

Huge opportunity

Investor interest in debt originating from India is also due to the country’s self-imposed stringent targets as detailed in the Paris Agreement on climate change in 2015. India has committed to reducing greenhouse gas emissions intensity of its GDP by 33-35% below 2005 levels by 2030 and 40% of power from non-fossil fuel-based sources by 2030.

To meet its commitments made under the Paris Agreement, India will need an estimated $2.5 trillion between 2015-2030.

Spelling the opportunity, for example, renewable sources make up only 7.9% of loans to the power sector.

Global lenders have themselves set ambitious targets to ensure a lower carbon footprint.

For instance, Barclays wants to achieve 100 billion of green financing by 2030, after facilitating 32.4 billion by the end of 2020. It is looking to raise $8-10 billion via sustainability-linked bonds by the end of this year.

HSBC deposits

Last month UK-based Hong Kong and Shanghai Banking Corp (HSBC) has raised $400 million of green deposits in India and identified financing opportunities to use those funds. Under its strategy, the bank first finds avenues to finance before raising the resources. The loans are extended for renewable projects, biodiversity linked initiatives, clean transportation and pollution control. Once the loans are sanctioned they are matched with deposits.

HSBC was the first bank to offer a green loan in India in January 2020, and it is currently in discussions to offer sustainability linked loans to multiple companies which will have incentives like a discount on rates.

ESG bonds

The ESG-focused fund-raising (green bonds) market, which has already scaled an all-time high so far this year, is set to cross the $10-billion-mark by December, according to Wall Street investment banking major JP Morgan, which has advised 12 of the 13 such bond issuances out of the country so far this year totalling $6.24 billion.

According to the bank, the overall bond issuances from the country may touch $25 billion this year, having already raised $17.5 billion so far, of which ESG-compliant bonds constitute USD6.2 billion.

Globally, the ESG has become a key board-room topic since 2013-14 and soon investors have also been asking on the ESG principles of their investee companies.



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HDFC Bank to turn carbon neutral by 2031-32

Banking & Finance

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Private sector lender HDFC Bank plans to turn carbon neutral by 2031-32 and will reduce its emissions, energy, and water consumption. “The bank will continue to incorporate and scale up the use of renewable energy in its operations,” it said in a statement on Thursday.

As part of its ESG strategy, it will also focus on offering loans for green products like electric vehicles at lower interest rates and incorporating ESG scores in its credit decisions. Additionally, it is working on a framework for issuing green bonds.

When asked about the plan to offer loans at lower interest rates for electric vehicles, Ashima Bhat, Group Head – CSR, Business Finance and Strategy, Administration and Infrastructure, HDFC Bank said the proposal is being evaluated.

Also read: A sizzling rally lures HDFC Bank to do more equity deals

“We have to see the introduction of electric vehicles in the market. Products are in the works, but there has to be a demand as well,” she said, adding that there is expectation that they will be introduced in a large way but it may be done in two to three years’ time.

As a part of its strategy to turn carbon neutral, HDFC Bank is also looking at other initiatives such as decreasing absolute emissions and energy consumed in line with current level of 3,15,583 MT CO2 emissions and increase rooftop solar capacity in large offices. It also plans to convert 50 per cent of its total sourced electricity to renewable energy, create single use plastic free corporate offices, plant 25 lakh trees and reduce water consumption by 30 per cent.

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‘Green bonds, a sustainable capital option for climate change projects’

Banking & Finance

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Green bonds have the potential to provide sustainable capital for climate change projects such as electric vehicles, mass rapid transport systems, water and irrigation management and renewable energy.

“While India has seen sustained investment in renewable energy over the last 8-10 years, which has resulted in accelerated growth for the sector, significant investments are still required. And the Indian economy requires massive long term, cost-effective financing for other green sectors, where green bonds could provide the much needed support,” according to Deepto Roy, Partner Project & Project Finance, Shardul Amarchand Mangaldas & Co.

In an exclusive interaction with BusinessLine, Deepto Roy explains how green bonds could make a difference by adoption of a national investment strategy aligned with a transition to low-carbon and climate-resilient development. Excerpts:

How do you see green bonds bridging funding requirements and making a difference?

Green bonds can help drive down cost of capital for sustainable projects, where the proceeds are exclusively utilised for financing climate change mitigation. Raised by corporates or by financial institutions for lending to renewable projects, they address the high cost of infrastructure funds and can help in ensuring better return on equity while driving down tariffs.

Infrastructure financing available in India typically suffers from asset-liability mismatches, where the project revenues do not necessarily track the repayment obligations of the financing. Bond refinancing can address this situation.

Bank debt has been a primary source of funding for the renewable sector. But banking funds are limited and subject to sectoral limitations and liquidity concerns for the financial institutions. For continuous growth bank funds need to be cycled effectively.

How has the green bond market evolved over the years? What are its prospects?

In 2015, Exim Bank and IDBI became the first Indian issuers of green bonds. They were followed by YES Bank and China Light & Power Wind Farms India. In 2016, NTPC, Axis Bank and PNB Housing Finance raised green bonds, the latter two for funding “green buildings”.

Later in 2017, IREDA and the Indian Railways Finance Corporation (IRFC) raised green bonds from the market. In the same year, the Securities & Exchange Board of India (SEBI) issued the “Disclosure Requirements for Issuance and Listing of green bonds”.

Also in 2017, Jain Irrigation raised one of the few non-renewable power specific green bonds. It was intended to finance water use infrastructure.

In 2018 the State Bank of India raised $650 million in certified climate bonds. In October 2019 India joined the International Platform of Sustainable Finance (IPSF) to scale up environmental friendly investments.

What are the challenges in deployment of green bonds in the country?

The development of the green bond market necessarily depends on the development and strengthening of the general corporate bond market. India’s sovereign credit rating of BAA2 means that many green bonds need credit enhancement to attract international investors. Multilateral development banks such as the International Finance Corporation (IFC) and the Agence Francaise re Development (AFD) have credit enhancement support in the past and they would continue to play an important role.

The renewable sector is also facing a number of challenges, which make financing green bonds challenging such as rapidly falling tariffs, delays in execution of power purchase agreements after signing of bids and cancellation of tenders post issuance of letters of allotment.

There is worldwide increases in the price of modules and other solar plant components and additional expenditure on account of the imposition of Basic Customs Duty (BCD) from April 2022 and potential delays in claiming contractual relief.

So what is the way forward for the Green Bond market?

India has became the second largest green bond market among developing countries in 2020, but the size of the market is one-tenth that of China. An RBI study on green bonds show that the cost of raising green bonds have remained higher than other bonds; and green bonds constituted only 0.7 per cent of the bonds issued in India since 2016. Clearly there is a long way to go for the Green Bond market, although over subscription of the offerings that have happened seem to indicate that significant appetite exists in the market.

The size and the penetration of the Green Bond market can go up with the encouragement of more robust foreign exchange risk management mechanisms. This will make Indian green bonds more attractive. Further, there is a need for mechanisms for a rupee denominated bond market which can be accessed by international investors.

And there is a need to create tools and certification methods for green tagging sustainable projects on the books of financial institutions and governments and building project pipelines that can underlie future green bond issuances.

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RBI joins network for greening financial system, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) on Thursday said it has joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS) as a member. The central bank joined the NGFS on April 23, 2021. Green finance assumed significance in the context of climate change.

Launched at the Paris One Planet Summit on December 12, 2017, the NGFS is a group of central banks and supervisors willing to share best practices and contribute to the development of environment and climate risk management in the financial sector, while mobilising mainstream finance to support the transition towards a sustainable economy.

The RBI said it expects to benefit from the membership of NGFS by learning from and contributing to global efforts on green finance, which has assumed significance in the context of climate change.

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