Utkarsh Majmudar

The Right to Clean Air

Delhi often struggles to breathe. So, do Tokyo, Shanghai and Dhaka. Air pollution is estimated to kill 7 million people worldwide each year. The problem is severe and needs immediate action. In August 2022, United Nations General Assembly passed a historic resolution declaring that everyone on the planet has a right to a healthy environment, including clean air, water, and a stable climate. While this is not legally binding, it could be vital for protecting the planet and its people.

Belgium passed a law in December 2022 that improves indoor air quality in closed spaces that are accessible to the public. This would require restaurants, gyms, and bars to meet air-quality targets and display real-time measurements of carbon dioxide concentrations — a proxy for how much clean air is piped in.

In India, we have The Air (Prevention and Control of Pollution) Act, The Air (Prevention and Control of Pollution) Act of 1981, and, The Environment (Protection) Act of 1986 (EPA). At least 155 countries are legally obligated – through treaties, constitutions, and legislation– to respect, protect, and fulfil the right to clean air. At the same time, roughly 80 countries had no air quality standards or guidelines at all. Hence, while these push for cleaner air, the impact on the ground has been far from satisfactory.

Lack of clean air results in premature death and harmful effects on the cardiovascular system, including increased hospital admissions and emergency department visits for heart attacks and strokes.

Air pollution negatively impacts the enjoyment of many human rights, particularly the right to life and health, especially concerning vulnerable groups.

SEBI moves ahead on ESG

The Securities and Exchange Board of India (SEBI), recently, approved the regulatory framework for ESG (Environmental, Social and Governance) disclosures, ratings and investing.

Disclosures

SEBI has introduced BRSR Core that is applicable to top 150 companies by market capitalisation. It has reduced the number of key performance indicators across the value chain to report on to around 50 and requires these items to be reasonably assured (audited).

A glide path will be prescribed for applicability of BRSR Core, beginning with the top 150 listed entities by market capitalisation from FY2023-24, which will be gradually extended to the top 1,000 listed entities by FY2026-27.

The requirements are to be based on a comply or explain basis from FY 2024-25 for disclosures and FY 2025-26 for assurance.

Ratings

Considering that emerging markets have a different set of environmental and social challenges, Sebi said that ERPs will be required to consider India or emerging market parameters in ESG rating.

ERPs will have to offer a separate category of ESG rating — Core ESG Rating — which will be based on the assured parameters under BRSR Core. tings.

The regulatory framework for ERPs would be through the introduction of a new chapter in the SEBI credit rating regulations.

Investing

Sebi has decided to introduce a new scheme category, enabling the launch of multiple schemes on ESG-related factors. It has decided to mandate ESG schemes to invest at least 65 per cent of assets under management (AUM) in listed entities, where assurance on BRSR Core is undertaken.

There will be a mandatory third-party assurance and certification by the Board of AMCs on compliance with the objective of the ESG scheme. Sebi mandates enhanced disclosures on voting decisions with a specific focus on environmental, social and governance factors.

It Also mandates disclosure of fund manager commentary and case studies, which highlight how the ESG strategy is applied to the fund or investments.

The High Seas Treaty

The open seas (the sea beyond countries’ territorial waters) cover two-thirds of the earth. Oceans serve three key purposes (a) they are the source for half the earth’s oxygen supply; (b) they are natural carbon sinks; (c) source of economic value: food, shipping and tourism. The oceans are overexploited with many species facing extinction, and heavily polluted as they are not covered under any national jurisdiction.

Earlier in March 2023, the High Seas Treaty, an instrument of the United Nations Convention on the Law of the Seas (UNCLOS), was agreed upon at an intergovernmental conference. In terms of importance and significance, this treaty is quite like the Paris Agreement. The key goal of the treaty is to protect 30 per cent of the world’s oceans by 2030, hence also called the 30´30 treaty. India is a party to the treaty.

The key features of the treaty include:

Access and Benefit-sharing Committee: It will set up an access- and benefit-sharing committee to frame guidelines. The activities concerning marine genetic resources of areas on high seas will be in the interests of all States and for the benefit of humanity. They have to be carried out exclusively for peaceful purposes.
Environmental Impact Assessments: Signatories will have to conduct environmental impact assessments before the exploitation of marine resources. Before carrying out a planned activity, the member will have to undertake processes of screening, scoping, carrying out an impact assessment of the marine environment likely to be affected, identifying prevention, and management of potential adverse effects.
Consent from Indigenous Community: Marine resources in areas beyond national jurisdiction that are held by indigenous people and local communities can only be accessed with their “free, prior and informed consent or approval and involvement”. No State can claim its right over marine genetic resources of areas beyond national jurisdiction.
Clearing-House Mechanism: Members will have to provide the Clearing-House Mechanism (CHM), established as part of the treaty, with details like the objective of the research, geographical area of collection, names of sponsors, etc.
Funding: A special fund will be established as part of the pact, which will be fixed by the conference of parties (COP). The COP will also oversee the functioning of the treaty.

The treaty still needs to be ratified by many countries and passed by their respective parliaments. There is still hope that the biodiversity within the oceans has a chance to thrive.

Taskforce on Nature-Related Financial Disclosures

The Taskforce on Nature-Related Financial Disclosures (TNFD) is an international initiative that builds on a model developed by the Taskforce on Climate-Related Financial Disclosures (TCFD).

The TNFD focuses on natural and environmental risks, including the loss of biodiversity and the degradation of ecosystems. In comparison, TCFD focuses on climate risk, an interdependent but distinct issue.

TNFD has recently published its disclosure framework’s fourth and final beta version. Launched in June 2021, the TNFD was tasked with developing an integrated risk management and disclosure framework for organisations to report and act on evolving nature-related risks.

The TNFD aims to provide a framework for organisations to report risks from biodiversity loss and ecosystem degradation.

Unlike climate risk with a measurable metric like global temperature, natural risk has no precise measure. The draft disclosures seek to change that and highlight disclosures and metrics related to core global disclosure metrics, core sector disclosure metrics, and additional disclosure metrics.

TNFD retains the four pillars of TCFD — Governance, Strategy, Risk Management, and Metrics and Targets. The diagram below highlights the key disclosures from TNFD.

With both TCFD and TNFD disclosures comping up, the non-financial reporting will likely become more comprehensive. The flip side would be increased reporting costs.

Image: TNFD website

Carbon Insetting

There is a lot of talk about carbon offsets, but little is heard about carbon insets. Carbon inset is a less controversial and equally powerful mechanism for carbon reduction. Carbon insetting is a powerful tool to achieve global net zero targets.

According to the International Platform for Insetting, “Insetting is a strategic mechanism used to scale effective nature-based solutions, enabling businesses to deliver against ambitious climate and sustainability goals and harmonize their operations with the ecosystems they depend upon.” Carbon inserting is often defined to be outside scope 1 and 2 emissions.

Compared to carbon offsets that involve buying carbon credits from unrelated third parties, companies invest in carbon reduction or removal projects along their own supply chains.

Three key features emerge: (a) it operates within the company’s value chain; (b) it utilizes nature-based solutions; and (c) does not require external markets.

Take the case of Nestle. It plants trees in and around its plantations. These trees protect crops, reduce water reliance and support workers on the very farms the company sources materials from. The trees not only capture carbon from the atmosphere but also generates credits to be used against their climate targets.

Another example is Burberry. Luxury fashion firm Burberry has created a regeneration fund to support a new portfolio of carbon insetting projects that aim to deliver regenerative agriculture practices across its supply chain.

Carbon insets attack the root cause of the problem and are a better option. Carbon offsets should be used as the last resort.