Corporate restructuring based on ESG criteria also concerns capital


MUMBAI : Companies aim to recalibrate their businesses not only to move closer to their net zero emissions goals, but also to tap into new pools of capital and consolidate valuations to attract investors to these reorganized entities while improving shareholder value, as calls for them to become environmental friendly gets stronger.

In the last month alone, Vedanta Ltd, Reliance Industries Ltd (RIL) and JSW Energy have started to take a new direction.

The restructuring of Vedanta may include a spin-off and subsequent listings of the aluminum, iron and steel and oil and gas businesses as stand-alone entities, while RIL transfers the company’s gasification assets to a wholly owned unit. JSW Energy hosts its green energy business in a new 100% owned unit, JSW Neo Energy Ltd (JSWNEL), while retaining the thermal business within the main company. The green business is expected to contribute over 62% of JSW’s earnings before interest, taxes, depreciation and amortization (Ebitda).

“The past decade has certainly been eventful with financiers, investors and society beginning to demand transparency as well as comparability and reliability in environmental, social and governance (ESG) performance. These demands are pushing organizations to tell the whole story of their value and their true impact on society, ”said Inderjeet Singh, Director of Deloitte India. “Access to green capital through dedicated ESG funds triggers a recalibration of companies towards an integrated perspective,” he said.

At the COP-26 summit, India announced its goal of achieving net zero emissions by 2070 and reaching 500 GW of non-fossil energy capacity by 2030. The installed renewable energy capacity of the India, excluding large hydropower projects, exceeded 100 GW in August. India currently ranks fourth in the world for installed renewable energy capacity, fifth for solar and fourth for wind. Certain sectors such as aviation, maritime, energy-intensive manufacturing and conventional power generation depend on the technological know-how of third parties and may find it more complex to improve certain aspects of their business such as fuel consumption. specific energy or environmental footprint, analysts say. . Other sectors, however, can quickly implement out-of-the-box solutions for their transition, they said.

Most Indian companies have announced plans to be net zero by 2035-2050, but experts have said this requires a deeper inbound approach than carbon neutrality, which allows the purchase of offsets. The biggest challenge will not only be access to technology, but also cost-effective access to technology.

“Company managers are faced with two choices: to adapt and change voluntarily, or to be forced to change. Forced change can come from regulatory changes, changing business conditions or from investors (access to capital, cost of capital), ”said Ruchit Mehta, fund manager, SBI Mutual Fund. “This transition of new markets also offers opportunities to reduce the cost of capital, which can dramatically increase shareholder value,” Mehta said.

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