“While SEBI’s regulations of 2023 define green security, it is of limited use. In green bonds, the amounts that have been raised are almost outdated — hardly Rs 4,000 crore in written terms. So, unless you define taxonomy, investors would not be sure where their investments are going. Apart from greenwashing concerns, it’s also our responsibility towards the investors to see where they are investing,” he said while speaking at The Energy Transition Dialogues organised by the Global Energy Alliance (GEAPP). The event is being held from November 1-3.
A foreign institutional investor planning to invest in India would always compare India’s green taxonomy with, say, that of the European Union (EU), and only invest if he is satisfied, said Tyagi.
The former SEBI chief said the bond market development is underdeveloped in India, unlike the equity market.
“In fact, 97% of the bonds are raised in AAA, AA plus and AA categories. Now many of these green energy projects will not match that. We have to have a great enhancement mechanism. In addition, we have to undertake some of the capital reforms that can really help in minimising the credit-off-taker risk as well as the currency risk,” he said.
A financial stability report put out by the International Monetary Fund in October said that almost 90% of this requirement would have to come from the private sector; as of now, ex-China is only around 40%.
“To reach 90% by 2030 is a very big challenge,” said Tyagi who served as the SEBI Chairman from March 2017 to February 2022. He has also worked extensively in the environment and energy sectors.
Other than the number and requirement of funds, Tyagi also raised concerns on whether the economy would be able to absorb such a magnitude of capital raising without increasing financial stability risk.
“If it’s unplanned, all the assets which are held by the financial sector, whether with banks, insurance companies or asset management companies (AMCs), would see a steep decrease in valuation because of unplanned transition. So, what happens to the asset side of those financial sector intermediaries? This is very, very essential. The Indian intermediaries, I think, have not really realised it.”
The other stakeholders and experts at the session agreed that regulators play a critical role in facilitating green transition by lowering risks and ensuring the decarbonisation goals are met in a timely manner. They were of the view that better regulation in the sector could also mean the introduction of market reforms and new instruments to bring in much-needed capital.
