1st January 2024 (10 Topics)

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India’s textile sector and global ESG norms

Context

Small businesses in India's textile sector express concern over EU's CBAM rules and ESG norms impact.

What is Carbon Border Adjustment Mechanism?

On 14 July 2021, the European Commission published its proposal for a regulation establishing a carbon border adjustment mechanism (CBAM).
The core element of the CBAM is the obligation to pay for the greenhouse gas (GHG) emissions embedded in certain carbon-intensive products imported into the European Union (EU) through the purchase of so-called CBAM certificates.
The CBAM is conceived as a measure against the risk of carbon leakage, a phenomenon whereby companies move their production abroad to avoid the costs of complying with stringent environmental standards domestically or import cheaper foreign products that were not subject to a carbon price in their country of production.

Sustainable Practices in Indian Textile Sector

Renewable Energy Dominance: Tamil Nadu's textile sector contributes over 50% of the state's renewable energy capacity.
Sustainable Processes in Clusters: Tiruppur showcases nearly 300 units connected to zero liquid discharge effluent treatment plants.
Recycled Fibers in Panipat: Panipat's open-end spinners exclusively use recycled fiber, demonstrating a commitment to sustainable practices.

What are ESG STANDARDS?

Environmental, Social, and Governance (ESG) goals are a set of standards for a company’s operations that force companies to follow better governance, ethical practices, environment-friendly measures and social responsibility.
Measurement of the company is not restricted to just the economic parameter which includes such as shareholder return. But they are also measured by their environmental impact, commitment to social issues and the soundness of their corporate governance and protection of shareholder rights.
The evolution of ESG laws and regulations is, however, still at a nascent stage in India,

Challenges and Opportunities Amid ESG Shift

EU's environmental goals, especially CBAM, pose challenges and opportunities for India's textile sector.
Concerns among MSMEs in India's textile sector regarding EU's regulations and the imperative to adopt sustainable practices.
Recognition that embracing sustainability can lead to a paradigm shift, solidifying India's textile sector as a top global supplier.

ESG Compliance

- ESG demands from global buyers acknowledged as significant disruptors, prompting a strategic re-evaluation.

- Emphasis on exporters leveraging benefits through India's potential free-trade agreement with the EU by investing in sustainability.

- Necessity for documenting existing sustainable and inclusive social practices to comply with ESG standards, ensuring industry-wide benefits.

Industry Response and Future Considerations

Annual Sustainability Reports: Major garment exporters releasing annual sustainability reports, showcasing commitment to transparency and accountability.
Collaborative Green Footprints: Textile clusters like Tiruppur showcasing collective green footprints, preparing for global exhibitions with sustainability-focused exhibits.
Financial and Institutional Support: Initiatives by the Ministry of Textiles, industrial associations, and financial institutions to support ESG compliance, certification, and sustainable projects.

Consequences of ESG norms on India's economy

Compliance Challenges: Small and medium enterprises may face difficulties adhering to stringent ESG standards, leading to increased compliance costs and operational challenges.

Global Market Access: ESG compliance could enhance India's access to global markets, especially those with a focus on sustainable practices, potentially boosting exports.

Investment in Sustainability: Industries may need to invest in sustainable practices and technologies to meet ESG requirements, fostering innovation and resource efficiency.

Financial Implications: The implementation of ESG norms may require financial institutions to fund green and sustainable projects, impacting the cost and availability of financing.

Competitiveness and Reputation: Companies aligning with ESG norms may enhance their competitiveness and reputation, attracting environmentally conscious investors and consumers.

Government Initiatives: The government may introduce supportive policies, task forces, and interventions to facilitate ESG compliance, aligning with global sustainability trends.

Shift in Consumer Behavior: ESG awareness may influence consumer preferences, prompting a demand for sustainable products and influencing industries' production strategies.

Trade Negotiations: ESG norms might be linked to international trade negotiations, potentially acting as a barrier or facilitating trade partnerships based on shared sustainability goals.

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India’s textile sector and global ESG norms

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