- April 18, 2022
- Posted by: CFA Society India
- Category:In Conversation With
Industry Expert: Gireesh Shrimali, Head of Transition Finance Research at the University of Oxford
Interviewed by: Parvez Abbas, CFA, Member, Public Awareness Committee
The challenges of climate change are not limited to some countries or businesses. These are universal and impacting everyone across the globe. The investors are increasingly concerned with the emerging risks from ESG factors. They are incorporating these factors in their investment decision making process. The businesses need to address these risks in order to maintain long-term viability of their business model. We interviewed Gireesh Shrimali, Head of Transition Finance Research at the University of Oxford, to get more insights on the ESG framework specially the environmental factors.
Parvez: The COP26’s primary goals are to achieve global net-zero by mid-century and to keep 1.5 degree Celsius in reach. How would this benefit developing countries, especially India, from an investment standpoint?
Gireesh: In general, given corresponding nationally determined contributions (NDCs), there would be increased investments. For example, India’s 2030 renewable target would require an additional $500 billion of investment.
Parvez: The issuances of green bonds, sustainability linked loans and sovereign green bonds are on the rise in developed countries? Is the trend expected to catch-up in developing countries?
Gireesh: While sustainability linked loans are still new, the issuances of green bonds has been increasing in developing countries, as a recent ADB report point out. The issuances of sovereign green bonds is also on the rise – for example, India is planning a $3.3 billion green bond raise in the near future.
Parvez: The increasing complexity and variety of green bonds have heightened the need for transparency and comparability. Are green bonds really supporting climate actions? Are these helping issuers and/or investors?
Gireesh: There has been an ongoing debate about green bonds being actually additional to emission reductions, with some arguing that they are not, whereas others arguing that they do. The jury is still out, and better transparency will help solve this debate in the favor or green bonds being actually additional.
Parvez: ESG is becoming integrated with the business models of companies from being a “good to have” to a “must have”? There are no set parameters for ESG. Every company has its own ways of analyzing these factors. How can investors avoid greenwashing?
Gireesh: This is a big issue, given ESG raters rarely agree, as pointed out by the Aggregate Confusion project at MIT. The solution is to have standardization across objective ESG metrics, such as various scopes of emissions. However, some degree of disagreement is likely to remain on subjective metrics, and here greater transparency of ESG methodologies would help users decide.
Parvez: Alternative sources of energy are touted as the future and would replace traditional sources. For developing economies, these would not be a cheaper source of energy and put additional cost burden vis-à-vis traditional sources. What are the ways to see early adoption by businesses?
Gireesh: I don’t agree that renewable energy is more expensive than traditional sources. For example, in many countries, solar energy is cheaper than fossil fuel alternatives. On the other hand, in case where renewable energy is expensive, government subsidies and innovative business models would be required.
Parvez: How should one incorporate sustainability as an integral part of investment decision-making?
Gireesh: It is easier to focus on the so-called material ESG factors to convince decision makers of the suitability of ESG into decision making.
Gireesh has more than 30 years of experience. He is the Head of Transition Finance at the Oxford Sustainable Finance Program and the Center for Greening Finance and Investment. He is also a research scholar at the naturgal gas and hydrogen initiatives at Stanford University. He is an Adjunct Professor at IIM Lucknow teaching a course on ESG risk measurement and management. He is involved in research on climate finance at Singapore Management University and John Hopkins University. Gireesh is a B.Tech from IIT Delhi, MS from University of Minnesota and Ph.D from Stanford University.
Parvez Abbas is working as an Assistant Director in the Commercial Lending division at Acuity Knowledge Partners. He has more than 13 years of experience spanning across investment research, credit solutions and structured products. He has served clients including global banks and asset managers providing assistance in securitization, credit risk management and portfolio analytics. In the past, Parvez has worked for Cians Analytics, Genpact and American Express. He is an MBA finance and a CFA charterholder.