India could become the largest market of sustainability finance expertise: Deutsche Bank's Kamran Khan

Kamran Khan, managing director, head of ESG for Asia-Pacific at Deutsche Bank
 

ESG (environmental, social and governance) framework is not an ideology; it is starting to make commercial sense. The markets regulator Securities and Exchange Board of India (Sebi) is driving for ESG disclosures through the Business Responsibility and Sustainability Reporting (BRSR) norms for Indian companies, wherein it is now mandatory for them to disclose sustainability-related information in their annual reports. Kamran Khan, managing director, head of ESG for Asia-Pacific at Deutsche Bank, tells Forbes India Sebi is making the “right progression” in disclosures. India could, in the coming years, become the biggest market of sustainable finance or sustainable technology expertise in the world, he says. Edited excerpts:

Q. ESG has been a buzzword for long. Are Asian corporates starting to change for the better?
Regulators in Asia are completely clued in, and companies are focussed on disclosure. It starts with the largest companies and then extends to the smaller ones across the universe. We are also seeing a change in how younger people think on ESG. Big brands are aware that they have to meet investor expectations, and they have also understood that sustainability is risk mitigating. Companies in India need to start thinking how they can position themselves as an Asian company and have the same ESG standards as seen in Europe and the US, then they can compete on price and quality of products.

Q. In India, Sebi is starting to talk about business responsibility and sustainability reporting (BRSR) for corporates here. Do you think it will gather pace? What more is required?
Sebi’s approach is absolutely right. I would urge everyone to be a little patient. Whether it is Sebi or the Monetary Authority of Singapore or FSA Japan, they cannot overnight change the rules of the game. It is the right progression in the escalation of disclosure requirements, which started with the largest 150 companies and has now gone up to 1,000. It is a logical progression so far.

Q. What are the challenges that India faces as it moves up the ESG compliance chain?
When we talk about ESG in a country like India, ‘challenge’ is not the operative word. It should be ‘opportunity’. India is on the path to capture the opportunities associated with the development of the global ESG market. How much and how quickly India captures these opportunities will become clear in the years to come. For example, in the renewable energy space, a lot has been executed in a very short period. The fact that renewables are priced on par or below fossil fuels itself is commendable. The recent budget demonstrates that the government is clearly focussed on all the key emerging market segments. There are no global leaders in these new market segments. For example, green hydrogen is a growing segment and any country that moves fast can capture that market. Sustainable agriculture is another critical piece.

India is marching decisively towards these opportunities. India will also have the advantage of providing to the world cost-effective solutions in these new markets. Development of required expertise and development of these markets in India will result in economic growth and deliver jobs to young people. Given the level of talent in India, it could very easily become the biggest market of sustainable finance or sustainable technology expertise in the world.



Q. You have spoken about wanting to make Deutsche Bank the No 1 ESG bank for India? How far are you from that goal?
Simply put, I have two KPI—the first is to build the ESG business in Asia and then build a credible brand around it. The aim is to be the most diligent and innovative about applying our high ESG standards and find solutions which other banks cannot do or might not have the capacity to implement. I often tell the leadership team that it is too early in the development of sustainable finance market to get fixated on volumes. Globally, we have committed to a sustainable finance business volume of €500 billion by end of 2025. At the end of 2022, we have achieved a cumulative sustainable financing and investment amount of €215 billion, outperforming our target by €15 billion. We also plan to hire the smartest people in ESG. We cannot do this if we are seen as just an average bank. Asia is the place where we can significantly enhance our brand. It is hard to do ESG credibly in Asia; if we can do it here, we can do it in North America or Europe.

One of the key India deals was the $750 million Greenko green bond, where we helped them raise capital through dollar bonds from the international market to increase capacity at their pumped-storage project in India. We also executed the world’s first green hedge framework standalone and independent of the bond framework.

Another important deal involved NBFC Shriram Finance. We helped the company issue a Social Bond, which would help them generate new employment opportunities, and micro, small, and medium-sized enterprise (MSMEs). These are the type of transactions you can expect from us in the future.

In 2023, the ESG environment continues to improve, it may turn out to be better than last year—based on the deal flow and the activity for Deutsche Bank. We have our core team in Singapore and there are country-based forums in Japan, Australia, China, India and ASEAN. This forms the regional senior leadership group which I chair.

Also read: Sustainability-Linked Loans: A primer for CFOs

Q. Guide us on your bank’s Centre of Excellence.
We have established a Centre of Excellence (CoE) in Singapore because Asia is the frontier of doing credible ESG transactions. Deutsche Bank’s ESG standards are tied to EU ESG taxonomy. This is important since one cannot copy-paste sustainable solutions from Europe or the US to emerging markets like Asia. We have a cross-divisional team and I head the CoE. As the head of ESG in APAC, I report to the bank’s management board. The CoE is 100 percent commercial and client-facing, advising clients and executing transactions. We also provide inputs into the bank’s policy on sustainability. We not only don’t try selling ESG products to a client, but we also have the ability, at an early stage in transaction development, to ensure that only deals which adhere to the bank’s ESG standards are developed as potential ESG transactions. A central team based in Frankfurt validates all Deutsche Bank’s ESG deals, whereby it checks for ESG compliance.

Q. We see an East and Young league table, which ranks Deutsche Bank at the ninth spot in ESG rankings.
The only ranking which is significant is the one which shows where the top global banks are in financing fossil fuel… we want to be as low as possible on that list. At this stage of ESG development, it is not the number of deals or volumes that matter—our 22 awards matter more than the deals. In the ESG space, one must also understand that when you do a customised transaction, you are likely to earn a higher fee and better pricing on that transaction rather than work on a commoditised product—which offers a thin margin and no ability to impact price. It is also important not to focus where deals are closed, the focus should be on where the sustainable capital was deployed.
 
Q. The European Union is contemplating new ESG rules which shake up ratings agencies. Your views?
I would say that until it gets real, one should not get too far ahead on any news about changes to EU ESG rules. But investors (particularly on the buy side) do currently base an overwhelming proportion of their investment decisions on the ESG ratings. The EU is doing its best and wants to ensure some conformity in the ratings. Each agency which comes up with these ratings has different algorithms, methodology, access to data, which is why the EU is trying to set standards for ESG ratings across the board.