Q. Why is this in News?
A. A Committee on Sustainable Finance, constituted by International Financial Services Centres Authority (IFSCA) submitted its report on Sustainable Finance suggesting development of the carbon market among others.
Q. What is Sustainable Finance?
A.
- Sustainable finance is defined as investment decisions that take into account the environmental, social, and governance (ESG) factors of an economic activity or project.
- Environmental factors include mitigation of the climate crisis or use of sustainable resources.
- Social factors include human and animal rights, as well as consumer protection and diverse hiring practices.
- Governance factors refer to the management, employee relations, and compensation practices of both public and private organizations.
Q. What are the Recommendations of the Committee?
A.
- Developing a voluntary carbon market, framework for transition bonds, enabling de-risking mechanisms, promoting regulatory sandbox for green fintech and facilitating the creation of a global climate alliance among others.
- Setting up of a dedicated MSME (Micro, Small and Medium Enterprises) platform for sustainable lending.
- Facilitating the use of innovative instruments such as catastrophe bonds, municipal bonds, green securitisation, blended finance among others.
- Enabling aggregation facilities, impact funds, green equity etc. in IFSC.
- IFSCA has to play a vital role in capacity building which lays the foundation for greening the financial system.
Q. What is IFSCA?
A.
- Establishment:
- The IFSCA was established in 2020 under the International Financial Services Centres Authority Act, 2019.
- It is headquartered at GIFT (Gujarat International. Finance Tec-City) City, Gandhinagar in Gujarat.
- Role:
- The IFSCA is a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre (IFSC) in India.
- At present, the GIFT IFSC is the maiden international financial services centre in India.
- Prior to the establishment of IFSCA, the domestic financial regulators, namely, RBI, SEBI, Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA) regulated the business in IFSC.
- Members:
- The International Financial Services Centres Authority consists of nine members, appointed by the central government.
- They include the chairperson of the authority, a member each from the RBI, SEBI, the IRDAI, and the PFRDA, and two members from the Ministry of Finance. In addition, two other members are appointed on the recommendation of a Selection Committee.
- Term:
- All members of the IFSCA have a term of three years, subject to reappointment.
Q. What are the Carbon Markets?
A.
- Carbon markets allow for buying and selling of carbon emissions with the objective of reducing global emissions.
- Carbon markets existed under the Kyoto Protocol, which is being replaced by the Paris Agreement in 2020.
- Carbon Markets can potentially deliver emissions reductions over and above what countries are doing on their own.
- For example, technology upgradation and emission reduction of a brick kiln in India can be achieved in two ways:
- A developed country which is unable to meet its reduction target can provide money or technology to the brick kiln in India, and thus claim the reduction of emission as its own.
- Alternatively, the kiln can make the investment, and then offer on sale the emission reduction, called carbon credits. Another party, struggling to meet its own targets, can buy these credits and show these as their own.
Q. What are the Related Indian Government Initiatives?
A.
- Perform Achieve and Trade (PAT) Scheme: The government has undertaken the PAT scheme, targeting carbon emission reduction in 13 energy intensive sectors.
- Encouraging Foreign Capital: The Government has permitted Foreign Direct Investment (FDI)up to 100 percent under the automatic route in the renewable energy sector.
- Encouraging Renewable energy:
- The Government has waived inter-state Transmission System (ISTS) charges for inter-State sale of solar and wind power for projects.
- Making provisions for Renewable Purchase Obligation (RPO) and setting up Renewable Energy parks
- India’s Nationally Determined Contribution: Under the Paris Agreement which was adopted by signatory countries in 2015, India had submitted Nationally Determined Contribution (NDC)with quantified targets
- To reduce the emissions intensity of its Gross Domestic Product (GDP) by 33-35% till 2030 from the levels at 2005,
- To achieve about 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030,
- To create an additional carbon sink of 2.5-3 billion tonnes of carbon dioxide equivalent through additional forest and tree cover by 2030.
