NARSEE MONJEE INSTITUTE OF

MANAGEMENT STUDIES,
NAVI MUMBAI

ANIL SURENDRA MODI SCHOOL OF COMMERCE 2023-24

CORPORATE FINANCE REPORT ON
“Sustainable Finance Horizon: Navigating Corporate
Responsibility in Financial Management “
B.Sc. Finance div B
SUBMITTED TO: CA ANIL THAKKAR
SUBMITTED BY:
TANISHKA GARG G012
SAMAIRA SHEKHAWAT G016
RIYANSHI NATANI G032
ISHITA CHADDA G059
 TABLE OF CONTENTS

SR.NO PARTICULARS
1. Introduction to Sustainable Finance
2. Why is Sustainable Finance Important?
3. Relevance of Sustainable Finance in Today’s world
4. Transitional Finance
5. Factors to Take into Consideration while opting for
Sustainable finance
6. Advantages $ Limitations on Corporate Finance for
Investors and Companies
7. Case Study on Sustainable Finance
 INTRODUCTION

Sustainable finance, also known as responsible or green finance, is an approach to financial activities
that incorporates environmental, social, and governance (ESG) criteria into investment and capital
allocation decisions. It aims to promote long-term economic growth, social well-being, and
environmental sustainability by directing capital and investments toward projects, businesses, and
initiatives that have a positive impact on society and the environment.

INCORPORATION OF ESG CRITERIA

At the core of sustainable finance is the incorporation of ESG criteria into investment decisions.
Environmental factors may include climate change mitigation and resource conservation. Social
factors often encompass issues like labour standards, human rights, and community development.
Governance factors deal with issues such as transparency, corporate ethics, and board diversity.

EVOLVING FINANCIAL PARADIGMS

Evolving Financial Paradigms: Sustainable finance represents a paradigm shift in the financial
industry. It challenges traditional financial paradigms that solely focus on maximizing short-term
profits, often without considering broader societal and environmental impacts. By integrating
sustainability considerations into financial decisions, sustainable finance seeks to balance profit with
social and environmental responsibility.

INSTRUMENTS OF SUSTAINABLE FINANCE

 Green Bonds:
Green bonds are a key instrument in sustainable finance. These are debt securities issued by
governments, corporations, or financial institutions with the explicit purpose of raising funds
for environmentally friendly projects. The funds generated from green bonds are earmarked
for projects such as renewable energy infrastructure, energy efficiency improvements, and
sustainable agriculture.
 Social Impact Bonds:
Social impact bonds, also known as pay-for-success bonds, are a financial tool designed to
address social issues. They involve a partnership between investors, government agencies, and
service providers to fund social programs. Investors receive returns based on the success of
these programs in achieving predetermined social outcomes, such as reducing homelessness
or improving educational attainment.
 ESG Integration:
ESG integration involves the systematic consideration of environmental, social, and
governance factors in investment decision-making processes. This integration can take various
forms, including screening out companies with poor ESG practices, actively investing in
companies with strong ESG performance, or engaging with companies to improve their ESG
practices.
HISTORICAL CONTEXT
 Emergence of Sustainable Finance:
The concept of sustainable finance has its roots in socially responsible investing (SRI) and
ethical investing, which began in the 1960s and 1970s. However, sustainable finance has
gained significant momentum in recent years, driven by a growing awareness of global
challenges such as climate change, social inequality, and corporate governance failures.
 Evolution over Decades:
Sustainable finance has evolved considerably over the decades. It has transitioned from a
niche approach to a mainstream consideration in the financial industry. Various stakeholders,
including governments, investors, and businesses, have played a role in promoting the
adoption of sustainable finance principles. The development of international standards, such
as the UN Principles for Responsible Banking and the Task Force on Climate-related Financial
Disclosures (TCFD), has also contributed to its evolution.

In summary, sustainable finance represents a transformative approach to finance that integrates ESG
criteria, challenges traditional financial paradigms, and leverages instruments like green bonds and
social impact bonds to address pressing societal and environmental issues. Its historical development
reflects a growing global awareness of the need to balance economic growth with social and
environmental responsibility.
 IMPORTANCE OF SUSTAINABLE FINANCE
RISK MITIGATION
 Identifying and Mitigating Environmental and Social Risks:
Sustainable finance is crucial for identifying and addressing environmental and social risks that
can have significant financial implications. Businesses and investors need to recognize that
issues like climate change, resource scarcity, and social inequality can pose risks to their
operations and investments. Through sustainable finance practices, these risks can be
assessed and mitigated, helping to protect the value of assets and investments.
 Ensuring Long-Term Financial Stability:
Sustainable finance promotes a long-term perspective in financial decision-making. By
considering ESG factors, companies and investors can make choices that reduce vulnerability
to short-term shocks and create more resilient financial strategies. This long-term focus aligns
with the goal of achieving financial stability and sustainability over time.

POSITIVE IMPACT
 Contributing to Environmental and Social Well-being:
Sustainable finance plays a pivotal role in addressing pressing global challenges. Investments
directed towards environmentally friendly projects, renewable energy, and social programs
can have a positive impact on the environment and society. For example, supporting
renewable energy projects reduces carbon emissions and contributes to the fight against
climate change, while investments in education and healthcare initiatives enhance social well-
being.
 Aligning Financial Goals with Societal Needs:
Sustainable finance aligns financial goals with societal needs. By investing in projects that
benefit society and the environment, financial institutions and investors can foster a sense of
corporate and social responsibility. This alignment not only benefits communities and the
planet but also enhances a company's reputation and customer loyalty.

REGULATORY LANDSCAPE
 Compliance with Evolving Environmental Regulations:
Sustainable finance is becoming increasingly important due to the evolving regulatory
landscape. Governments and international bodies are introducing environmental regulations
and standards to combat climate change and other environmental issues. Financial institutions
and corporations must adapt to these regulations, which often require the consideration of
ESG factors and disclosure of sustainability-related information.
 Addressing Growing Social Expectations:
Sustainable finance is also driven by the expectations of stakeholders, including consumers,
employees, and investors. There is a growing demand for transparency and accountability in
corporate behaviour, particularly regarding sustainability and social responsibility. Companies
that do not align with these social expectations may face reputational damage and a loss of
competitiveness.
 RELEVANCE OF SUSTAINABLE FINANCE IN TODAY’S
WORLD
Climate Crisis
1. Urgency to Combat Climate Change
 Climate change is a serious threat to the global economy. The Intergovernmental Panel on
Climate Change (IPCC) has warned that climate change could cause up to $10 trillion in
economic losses per year by the end of the century.

 Climate change is already having a devastating impact on people and communities around the
world. Extreme weather events such as floods, droughts, and wildfires are becoming more
frequent and severe.

 The window of opportunity to act on climate change is closing. The IPCC has stated that we
need to reach net zero emissions by 2050 to avoid the worst impacts of climate change

2. Role of Sustainable Finance in Environmental Stewardship

 Pricing environmental risks and opportunities. Sustainable finance helps to price
environmental risks and opportunities into financial markets, which can incentivize businesses
and individuals to reduce their environmental impact.
 Promoting transparency and disclosure. Sustainable finance promotes transparency and
disclosure of environmental information, which can help to hold businesses and governments
accountable for their environmental performance.
 Supporting sustainable financial products and services. Sustainable finance supports the
development and adoption of sustainable financial products and services, such as green bonds
and sustainability-linked loans.
 TRANSITIONAL FINANCE

Transitional finance, also known as transition finance, is a financial concept related to environmental
and sustainability goals. It is a part of the broader field of sustainable finance, which encompasses
strategies and investments aimed at promoting environmental, social, and governance (ESG)
principles.

Transitional finance refers to financial activities or investments that support and facilitate the
transition of industries or businesses from less sustainable practices to more sustainable ones. This
transition typically involves making changes to reduce the environmental impact of operations,
improve social responsibility, and enhance governance practices. Transitional finance is often used to
finance projects or initiatives that are a step towards achieving sustainability and ESG goals.

Key characteristics and examples of transitional finance include:

● Transition to Sustainability: Transitional finance supports industries or businesses in

moving from less sustainable practices to more sustainable ones.
● Economic Transition: It is often used in sectors that have a significant environmental
impact and are in the process of transforming their operations.
● Risk Mitigation: Transitional finance helps reduce environmental and social risks associated
with industries in transition.
● ESG Alignment: It aligns financial activities with environmental, social, and governance
(ESG) principles, promoting responsible practices.
● Measurable Progress: Companies receiving transitional finance set goals and key
performance indicators to measure and report their progress.
● Transparency: Companies are expected to provide transparent reporting on fund utilisation
and sustainability commitments.
● Green and Sustainability Bonds: Transitional finance can involve issuing bonds designed
to fund specific sustainable initiatives, including transitional projects.

The concept of transitional finance recognizes that a rapid shift to sustainability may not always be
feasible for certain industries, and it aims to support and incentivize these industries to take gradual
steps in the right direction. It acknowledges that while immediate sustainability transformation is the
goal, providing financial support for transitional initiatives can be an important step towards
achieving a more sustainable and responsible future.
FACTORS TAKEN INTO CONSIDERATION WHILE OPTING
FOR SUSTAINABLE FINANCE
Opting for sustainable finance involves making financial decisions that align with environmental,
social, and governance (ESG) principles. When considering sustainable finance options, it's essential
to take several factors into account to ensure that your investments or financial choices support
sustainability and responsible business practices. Here are key factors to consider:

1. Environmental Impact:
Evaluate the environmental impact of the investment or financial product. Consider whether it aligns
with climate goals, conservation efforts, and sustainable resource management.

2. Social Impact:
Assess the social impact of the investment. Examine how it affects communities, workers, and
societal well-being. Look for investments that promote fair labor practices, diversity, and social
equity.

3. Risk Management:
Evaluate the risk associated with the investment. Sustainable finance often involves assessing
environmental and social risks, which can have financial implications.

4. Financial Performance:
Consider the financial performance of sustainable investments. Contrary to the myth that
sustainability comes at the cost of returns, many sustainable investments have competitive financial
performance.

5. Impact Metrics:
Look for clear and measurable impact metrics. Sustainable investments should have well-defined
goals and indicators that demonstrate their contribution to sustainability objectives.

6. Transparency and Reporting:

Seek investments or financial products that provide transparent reporting on ESG practices and
impact. You should be able to track how your investments contribute to sustainability.

7. Regulatory and Industry Standards:

Stay informed about relevant regulations and industry standards for sustainable finance. Compliance
with these standards can help ensure the credibility and authenticity of sustainable investments.

8. Diversification:
Diversify your sustainable portfolio to spread risk and capture opportunities in various sectors and
asset classes. A well-diversified portfolio can help achieve both financial and sustainability objectives.
9. Certifications and Labels:
Look for sustainability certifications or labels associated with investment products, such as green
bonds, impact investing funds, or responsible investment options. These labels can offer additional
credibility and transparency.

10. Cost and Fees:

Assess the cost structure and fees associated with sustainable finance products. Make sure that the
expenses are reasonable and in line with industry standards.

By considering these factors, you can make informed and responsible decisions when opting for
sustainable finance. Whether you are an individual investor or part of an organization, integrating
sustainability into your financial choices can contribute to a more sustainable and responsible future.
 ADVANTAGES AND LIMITATIONS OF SUSTAINANBLE
FINANCE
ADVANTAGES:
1. ADVANCEMENT OF STRATEGIC MANAGEMENT:
Recent studies have shown that organisations with higher ESG ratings that are also financially
successful are regarded as having superior management over the long term, most obviously
a strategic one, and as a result are anticipated to have stronger growth potential in the
future. The application of ESG standards concurrently with excellent financial performance
catalyses a positive evolution.
It contributes to:
 Strong financial performance
 Long term strategic orientation
 Transparency
2. SHAREHOLDER VALUE:
ECG factors have a substantial impact that varies between industries. Increasing ESG can
significantly increase shareholder value. For instance, companies would see an average
increase in stock valuation of 35% if they adopted top decile adheres to across all eight
criteria. Which ESG changes can increase share price mostly depends on the firms. Just one
or two ESG variables account for more than half of the profits. Our study makes it possible to
pinpoint these enhancements for each company and, as a result, prioritise ESG participation.
Focusing on generating shareholder value should be effective in persuading businesses,
resulting in a positive feedback loop between impact and returns.

3. REDUCTION IN COST:
It is sometimes asserted that sustainability lowers a company's cost of capital, or the rate of
return it must provide investors to obtain money. The reasoning appears simple. Because
investors demand a smaller return from sustainable businesses, they are less risky. This
reasoning also appears to be true in practise, as numerous experts note that it is difficult for
unsustainable businesses to secure finance.
This can be understood with the help of an example:
 Airline A runs on hydrogen, and its expected cash flows are £1 million per year, forever. Its
cost of capital is 10%, so its value is £10 million. Assume that airlines can raise debt of up to
half their value, so Airline A can raise £5 million of debt.
Airline B runs on conventional fuel. Its expected cash flows are also £1 million per year.
However, there is a 10% chance that the government implements a carbon tax which
reduces its cash flows to zero (for simplicity). Thus, its expected cash flows are £900,000 per
year. Assume that its cost of capital stays at 10%, so its value is £9 million and it can raise
only £4.5 million of debt.
Thus, Airline B does have ‘trouble raising financing. But this is nothing to do with its cost of
capital being higher – it is the same as Airline A’s. Instead, the difficulty comes purely from a
cash flow channel. Airline B has trouble raising financing because risk reduces its cash flows,
not because risk increases its cost of capital.
4. FUNDING OPPORTUNITIES AND GOVERNMENT GRANTS:
When businesses prioritise protecting the environment, treating employees fairly, and having
strong leadership, it is like a magic trick that attracts more funding from investors. It is
because people view these businesses as being less dangerous and more reliable. They can
obtain unique financial arrangements, pay lower interest rates, and even receive financial
assistance from the government. Additionally, because customers enjoy purchasing products
from these businesses, they also profit more from doing so. It is a win-win situation because
doing good deeds for the world can also result in increased profits for the business.
As per the update in September 2021, In India, the government has introduced various
initiatives and incentives to encourage ESG practices. Some potential avenues for support
include:
 National Clean Energy Fund (NCEF): While not exclusive to ESG companies, the NCEF
supports clean energy projects, contributing to environmental sustainability.
 Renewable Purchase Obligation (RPO): This policy mandates a certain percentage of
energy consumption to come from renewable sources, providing an incentive for companies
involved in clean and sustainable energy.
 Goods and Services Tax (GST) Benefits: The government may offer GST benefits or
exemptions for products and services that align with sustainability goals.
 Financial Assistance for Cleaner Production: Some states in India provide financial
assistance to industries adopting cleaner and more sustainable production processes.
 Investment Subsidies for Sustainable Practices: Various sectors may receive investment
subsidies for implementing sustainable practices, such as waste reduction or energy
efficiency.
 National Mission for Sustainable Agriculture (NMSA): This initiative supports
sustainable agriculture practices, including organic farming and water-use efficiency.
 Start-Up India: While not specific to ESG, the Start-Up India initiative may support
businesses with innovative solutions and practices, including those related to environmental
and social impact.
LIMITATIONS
1. GREENWASHING RISK:
Greenwashing refers to the practice of exaggerating or misrepresenting a company's
commitment to environmental sustainability to appear more environmentally friendly than it
is. This can mislead consumers, investors, and other stakeholders who may believe they are
supporting a genuinely sustainable business. An example of greenwashing in the sustainable
finance realm involves a company in the fashion industry. Let us call this company
"GreenStyle Apparel." GreenStyle Apparel claims to be committed to sustainability, using
phrases like "eco-friendly fabrics" and "environmentally conscious production" in its
marketing materials. However, upon closer inspection, it is revealed that GreenStyle
Apparel's supply chain involves significant environmental harm, with questionable labour
practices and the use of non-renewable resources. The company might have one small
sustainable initiative, such as a limited line of organic cotton shirts, but this represents a tiny
fraction of its overall production. To further mislead stakeholders, GreenStyle Apparel might
use selective or vague sustainability metrics, making it difficult for consumers and investors
to assess the true extent of its environmental impact. This type of greenwashing can create a
false image of the company as a leader in sustainable fashion, potentially attracting eco-
conscious consumers and investors. The risk here is that stakeholders who genuinely care
about sustainability might support GreenStyle Apparel under the false belief that they are
contributing to positive environmental and social change. Meanwhile, the company may not
be making substantial efforts to address its broader environmental impact. To mitigate
greenwashing risks, it's crucial for stakeholders to scrutinize companies' sustainability claims,
demand transparency in reporting, and look for third-party certifications or independent
assessments. Regulators and industry bodies are also increasingly emphasizing the need for
standardized and accurate reporting to prevent greenwashing practices in the field of
sustainable finance.

2. HIGHER COST:
The initial cost can be high due to reasons like:
 Initial Investments: Implementing new technology and restructuring operations
might have significant upfront expenses.
 Compliance and Certifications: Maintaining compliance requirements and obtaining
sustainability certifications add to the financial burden.
 Cost of Capital: For sustainable ventures, investors may demand a premium, which
affects the cost of immediate funding.
 Research and development costs are higher when creating sustainable or innovative
goods or services.
 Supply Chain Transparency: Investing in monitoring and auditing procedures is
necessary to guarantee ethical production and responsible sourcing.
 Marketing and branding expenses are increased when communicating sustainable
activities to customers and investors.
 Workforce Transition: Developing talent and transition costs may be incurred when
training and upskilling the workforce for sustainability.
3. UNCERTAIN RETURN
Due to a variety of factors influencing the sustainable business landscape, companies making
investments in sustainable financing face unclear financial outcomes. The adjustment period
that comes with adopting sustainable efforts is one of the biggest obstacles. Although many
programmes promise long-term gains, the delay between initial inputs and profitable
outcomes can raise doubt. Market perception adds even another element of unpredictability
because it can be difficult to gauge and influence investor and consumer reactions to
sustainable practises. The uncertainty is exacerbated by the higher upfront costs of adopting
sustainable practises, which forces businesses to strike a precarious balance between current
investments and future rewards. The success and commercial acceptance of these
technologies are unpredictable until they are fully realised, which adds to the
unpredictability of research and development investments in sustainability. The competitive
environment, supply chain complexity, transition risks, ESG metric volatility, and supply chain
instability all add to the unpredictability. Despite these obstacles, sustainable finance seeks
to link businesses with environmental, social, and governance concerns in order to create
long-term value. The uncertainties are anticipated to lessen over time as sustainability
becomes increasingly integrated into business plans and consumer preferences, opening the
door for more predictable financial advantages.
 CASE STUDY- AXIS BANK
COMPANY PROFILE - AXIS BANK

Axis Bank is one of the leading private sector banks in India, offering a wide range of products and
services to corporate, government and retail customers through a variety of delivery channels .

i. Personal banking: Savings and current accounts, credit and debit

cards, loans, insurance, and investments
ii. Corporate banking: Working capital loans, term loans, project finance, trade finance, and
treasury services
iii. SME banking: A range of products and services to meet the needs of small and medium
enterprises
iv. Agriculture banking: A range of products and services to support farmers and the
agricultural sector
v. Retail banking: A range of products and services to meet the needs of retail
customers, such as loans, credit cards, insurance, and investments

Axis Bank is a leading player in digital banking and offers a variety of online and mobile banking
services to its customers. It is also a leader in green finance and is committed to supporting
sustainable businesses and initiatives.

Axis Bank has been recognized for its excellence in banking and finance. In 2023, it was named the
"Best Bank in India" by The Banker magazine and the "Best Bank in India for Digital Banking" by
Euromoney magazine.

SECTOR AND INDUSTRY CONTEXT

Axis Bank is in private bank sectors and operates in financial services industry. It has a large market
cap of ₹2,99,520 crore; stock is ranked 16. It is low risk as it is Stock is 1.81x as volatile as Nifty.

INNITIATIVES AND INVESTMENT

 Launching India's first certified green bond: In 2016, Axis Bank launched India's first certified green
bond by an Asian bank, raising USD 500 million. The proceeds of these bonds were used to finance
and/or refinance green projects in accordance with the Bank's Green Bond Framework, contributing
towards climate action.
 Creating a dedicated green finance team: Axis Bank has a dedicated green finance team that is
responsible for developing and implementing the bank's green finance initiatives. The team also
works with clients to help them identify and finance sustainable projects.
 Offering a variety of green finance products and services: Axis Bank offers a variety of green finance
products and services to its clients, including renewable energy loans, energy efficiency loans, and
green building loans. The bank also offers green investment products, such as green bonds and green
equity funds.
 Investing in sustainable projects: Axis Bank has invested in several sustainable projects, including
renewable energy projects, energy efficiency projects, and green building projects. The bank has also
invested in sustainable companies and funds.

FINANCIAL COMMITMENT TO SUSTAINABLE PROJECTS

 In 2022, Axis Bank provided INR 1,500 crores in financing to a renewable energy company to develop
a solar power project in Gujarat.
 In 2021, Axis Bank provided INR 1,000 crores in financing to a waste management company to
develop a waste-to-energy plant in Maharashtra.
 In 2020, Axis Bank provided INR 500 crores in financing to an electric vehicle manufacturer to
develop a new manufacturing facility.

Axis Bank is also one of the leading investors in green bonds in India. In 2022, the bank invested INR
1,000 crores in a green bond issued by a renewable energy company.

IMPACT AND OUTCOMES

Positive Environmental Outcomes

 The solar power project in Gujarat that Axis Bank financed is expected to generate enough electricity to power over
100,000 homes, displacing over 100,000 tonnes of carbon dioxide emissions per year.

 The waste-to-energy plant in Maharashtra that Axis Bank financed is expected to process over 1,000 tonnes of waste per
day, diverting it from landfills and generating clean energy.

 The electric vehicle manufacturing facility in Maharashtra that Axis Bank financed is expected to produce over 100,000
electric vehicles per year, reducing air pollution and greenhouse gas emissions.

Social and Community Impact

 The solar power project in Gujarat that Axis Bank financed is expected to create over 1,000 jobs during construction and
operation, many of which will be filled by local people.

 The waste-to-energy plant in Maharashtra that Axis Bank financed is expected to reduce air pollution, which can lead to a
decrease in respiratory illnesses, particularly among children and the elderly.

 Axis Bank's financing of sustainable farming practices has helped to increase the incomes of over 100,000 farmers in rural
India.

 Axis Bank's women's banking division has provided financial services to over 1 million women in India, helping them to start
and grow businesses and improve their financial well-being.
 Financial Performance Post-Adoption

 Axis Bank's Sustainable AT1 Notes issuance was oversubscribed by investors, demonstrating the strong demand for
sustainable investments in India.

 Axis Bank's investment in renewable energy projects has helped to reduce the bank's exposure to the risk of climate
change, which is a major financial risk for banks.

 Axis Bank's investment in energy efficiency projects has helped to reduce the bank's energy consumption and costs, saving
the bank millions of dollars each year.

 Axis Bank's commitment to sustainable finance has helped to improve the bank's brand value and reputation, which has
made the bank more attractive to customers and investors.
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