Adopting EP in India: Challenges and Recommendations for Future EP Outreach

Abstract

Throughout the world, environmental and social concerns are increasingly integrated voluntarily by businesses into their operations and interaction with stakeholders as part of sustainable and long-term business models. This has led to greater emphasis on disclosure, evident from business participation in forums such as the CDP, UNGC, UNPRI and UNEPFI. Environmental and social issues cannot be ignored in the pursuit of greater economic development. This is particularly relevant to emerging economies such as India where building infrastructure and the utilisation of natural resources are imperative for the development of the economy. Industry insiders look for a balance between these two seemingly contradictory requirements, often exacerbated by poor governance and enforcement of regulations. One of the main concerns for investors in India is the lack of proper infrastructure. Growth of infrastructure is imperative for the long-term growth of the Indian economy and, as such, has been spearheaded through the PPP model under the project financing framework. This necessitates the large-scale acquisition of land and use of natural resources, making the principles of sustainable development assume greater importance. Internationally, financial institutions have met the ESG challenges posed by project financing activities by adopting the Equator Principles, often driven by brand reputation, best in class commitment, globally aligned systems and procedures, new financial business opportunities and access to low-cost funds. Regional disparity, however, means that few organisations from emerging economies have joined the EP association, particularly from the big emerging economies of China and India. This chapter examines the reasons behind the lack of EP adoption in India. It will attempt to answer the basic questions: What are the challenges in adopting EP for Indian banks and financial institutions? What are the opportunities? How can ESG concerns in the project financing operations of banks and financial institutions in India become mainstream?