Current Affairs – May 23, 2024

{GS2 – Governance – Laws} Overhauling the Environment, Social and Governance (ESG) Metric **

• Context (IE): There is increasing demand to revise Environment, Social and Governance (ESG) criteria to more accurately evaluate the enterprise decisions essential for addressing and overcoming climate change and rising inequality.

What is ESG?

• 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.
  1. Environmental criteria consider how a company performs as a steward of nature.
  2. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.
  3. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
• It focuses on non-financial factors as a metric for guiding investment decisions wherein increased financial returns are no longer the sole objective of investors.
• Ever since the introduction of the United Nations Principles for Responsible Investing (UNPRI) in 2006, the ESG framework has been recognised as an inextricable link to modern-day businesses.
• ESG surpasses financial metrics, assessing energy conservation, diversity, employee well-being, community engagement, and ethical practices.
• It helps to evaluate how a company manages risks and opportunities related to changes in social, economic, and environmental factors.

Evolution of ESG

• The ESG concept, a blend of environmental, social, and governance factors, has a rich history spanning two decades.
• It was first introduced in a 2005 UN-led report, ‘Who Cares Wins: Connecting Financial Markets to a Changing World’, and has since been embraced by financial institutions, investors, and regulators.
• Several earlier strategic and regulatory frameworks focused on sustainability, such as:
  1. EHS (Environmental, Health, and Safety): Aimed to improve labour and safety standards for employees and reduce pollution while pursuing economic growth.
  2. Corporate Sustainability: This concept emerged when companies started exceeding legally required environmental impact reductions.
     • However, this concept was sometimes misused through “greenwashing” where companies falsely claimed to be environmentally responsible.
  3. CSR (Corporate Social Responsibility): Began to include ideas on how companies should address social issues.

Credit: ESG Model Validation

Significance of ESG

• Future Security for Firms: These assessments have become vital for firms to secure their future by de-risking themselves from external uncertainties, as well as to conform to regulatory requirements.
• Investment Integrity: It is not only a means for companies to attract discerning investments but also a mechanism to ensure that these investments contribute to the overall well-being of the planet.
  • This dual role is particularly significant for companies operating in environmentally challenging sectors like energy and mining.
• Addressing Climate Change: ESG aids businesses in addressing climate change, mitigating risks, enhancing sustainability, and meeting global climate goals.
• Social Responsibility: ESG includes social aspects like diversity, employee well-being, and community engagement, fostering ethical practices and stakeholder relationships.
• Strong Governance: “ESG’s ‘G’ highlights governance, promoting transparency, accountability, and ethics, fostering investor trust and sustainability.”
• Financial Performance: “Inclusive companies meet financial goals consistently; ESG integration boosts resilience in crises and fosters innovation.“
• Meeting Stakeholder Expectations: ESG aligns with consumer and investor preferences for environmentally and socially conscious practices.
• Regulatory Compliance: ESG disclosure requirements are evolving, reflecting their increasing importance. Adhering to ESG standards positions companies to comply with changing regulations.
• Long-Term Value: ESG contributes to long-term value creation by managing risks, fostering stakeholder relationships, and positioning companies for sustainable growth.

Relevance of ESG in India

• Regulating bodies: India has long had several laws and bodies regarding environmental, social, and governance issues, including the Environment Protection Act of 1986.
• NGT: Quasi-judicial organisations such as the National Green Tribunal (NGT) govern employee engagement and corporate governance practices.
• BRSR: The Securities and Exchange Board of India (SEBI), revised the annual Business Responsibility and Sustainability Report (BRSR) required by the 1,000 largest listed companies in India.

Concerns related to ESG

• Transition Costs: Transitioning to sustainable practices may be costly, requiring investments in infrastructure, technology, and training and potentially straining financial resources.
• Risks and Uncertainties: Certain environmental or social initiatives might not yield immediate returns or could face opposition from stakeholders.
• Smaller Businesses: Smaller businesses face challenges prioritising ESG due to limited resources, making it harder to balance with daily operations.
• Legitimacy of Self-Regulation: CSR is mandatory in India but voluntary in regions like the EU, UK, and US, sparking concerns about self-regulation’s legitimacy.
• ESG Evaluation: The lack of uniformity and inherent subjectivity in ESG evaluation criteria undermine their credibility, as ESG ratings from different agencies are often inconsistent and incomparable.
• Single Materiality Bias: ESG often measures only the risks climate change and social upheaval pose to a company, not the company’s impact on these issues.
  • This “single materiality” perspective overlooks broader social and environmental implications.
  • European regulators now use “double materiality” standards, measuring both external impacts on organisations and their impact on the environment and society.
• Anomalies in Indexing and Ethical Ratings: Bundling the E, S, and G elements into a single evaluation metric leads to curious consequences.
  • The ESG Index Provider Dow Jones Indices recently removed Tesla, an emissions-reducing electric vehicle manufacturer, from the Standard and Poor Sustainability Index but kept Exxon Mobil, an oil giant.
  • Cigarette companies were rated as more ethical investment choices than Tesla, which was penalised for workplace and governance issues.

{GS2 – IR – Groupings} BIMSTEC charter comes into force

• Context (TH): With the coming into force of the charter, which was adopted in the 5^th summit of the BIMSTEC leaders, the grouping has acquired a ‘legal personality’ status.

• Now, BIMSTEC will be able to enter into structured diplomatic dialogue with other groups and countries.
• Post-pandemic, the 5^th summit occurred virtually in 2022 under Sri Lanka’s chairship.
• Thailand took over the chair of BIMSTEC after the 5^th leaders’ summit.
• After ratification by Nepal’s parliament, the BIMSTEC charter came into force.

To know more, visit > BIMSTEC.

{GS2 – IR – India-Canada} Canadian colleges relax education requirement

• Context (IE): Canadian colleges relax 16-year education requirements for postgraduate admissions.

• Typically, 16 years of education required completing a four-year undergraduate programme.
• However, in India, the standard Bachelor’s degree is awarded after a three-year course.
• Students from India typically complete only 15 years of education (10+2+3) to become graduates.
• Before the relaxation, Indian students either had to complete another year-long course in India or pursue a second Bachelor’s degree in Canada.
• Admissions to Master’s programmes also allow students to bring their spouses along with work permits.
• After a year of the Master’s degree course, students become eligible for a three-year work permit.
• This is advantageous as postgraduate students are exempt from the recently imposed capping system.

{GS2 – IR – India-Pak} Para diplomacy and Karatarpur Sahib

• Context (IE): Proposals to engage Pakistan for “Kartarpur Sahib” bring to the fore the idea of ‘Para-diplomacy’.

Paradiplomacy

• Paradiplomacy involves formal interactions between entities below the federal level — provincial and local governments — in pursuit of shared national goals.
• Paradiplomacy, conducted in tandem with the central government, can often produce openings that cannot be generated between the national governments’ congealed positions.

Paradiplomacy opportunities on the Pakistan border

• The state and Centre have to work for “exchange of territory” with Pakistan in return for Kartarpur Sahib.
• Reopening the Attari and Hussainiwala borders with Pakistan for trade and tourism.
• Special economic zone along the entire Punjab border seems to be a possible idea to work with.

Difficulties in para diplomacy with Pakistan

• Past baggage: It is hard to change the territorial status quo along the Radcliffe Line with a history of distrust and bloodshed.
• Pakistan Army’s resistance to economic cooperation: The Pakistan Army is not inclined to resume trade with India.

Refer to India-Pak trade to know more about halting of Indo-Pak trade.

Way forward

• India’s neighbourhood policy must work with the interests of the people in the border provinces.
• A consensus between the centre and the regional parties in the border provinces on developing a productive relationship with the neighbours is a must.

{GS2 – Polity – IC – Elections} Form 17 C and Voter Turnout Data

• Context (TH I IE): The SC is hearing a petition from the NGO ADR asking the ECI to post polling station voter turnout data within 48 hours of each LS election phase.

• The NGO also highlighted a significant difference between the initial voter turnout figures released by the ECI after polling and the final percentages published later.
• Civil society members have also urged the ECI to immediately disclose authenticated voter turnout records from each polling station, as detailed in Part I of Form 17C, on its website.

ECI’s Response

• The initial number is a preliminary estimate, and the higher final figure is simply due to the fact that the ROs send the updated data late.
• Even the data released so far is not final, and that figure will be known only after postal ballots are counted on the day of counting.
• It takes time to verify and collate the data, particularly from remote polling stations.
  • This process takes P+1 (polling day plus 1) or P+2 (polling day plus 2) days depending on constituencies and arrival schedule of polling parties due to geographical and weather conditions.
  • This data may further get updated for any constituency where repoll is being conducted (which is normally on P+4 days).
• ECI claimed that disclosure of Form 17C data could cause ‘confusion in the minds of voters’ since it would also include postal ballot counts.

Form 17 C

• It is also known as the “Polling Station Wise Result Sheet“, a document prepared by the presiding officer at each polling booth.
• This information is not available on the Voter Turnout app.
• Part I of Form 17C contains crucial information-
  1. The identification numbers of the EVMs used in the polling station,
  2. The total number of electors assigned to the polling station,
  3. The total number of voters as entered in the register for voters (Form 17A),
  4. The number of voters who decided not to record their votes after signing the register,
  5. The number of voters who were not allowed to vote,
  6. The total number of test votes and votes recorded per EVM.
• Part II of the same form contains the results of the counting carried out on the stipulated day.
• This form is crucial for ensuring transparency in the electoral process.

Legality of Form 17 C

• As per the 1961 Rules, the ECI has to maintain two forms that have data on the number of electors and the votes polled — Forms 17A and 17C.
  • Form 17 A is used to record the details of every voter who comes into a polling booth and casts his or her vote.
  • Form 17 C is an account of all the votes recorded.
• Currently, the ECI does not provide public access to Form 17 C, stating that it is meant only for candidates and their agents.

Significance of Form 17C

• It provides absolute voter turnout data at the booth level, which is a critical measure of transparency.
• It helps candidates and their agents verify the accuracy of the voting process & count of votes cast.

Need for Public Disclosure of Form 17 C

• This would increase transparency and trust in the electoral process.
• It would help verify the reported voter turnout and address any discrepancies between reported numbers and actual counts.
• Smaller parties and independents struggle to deploy agents at every booth, risking not receiving Form 17C and hindering their vote monitoring.

• Withholding the absolute number of votes polled from public disclosure could lead to suspicions of data tampering or inaccuracies in voter turnout reporting.

{GS3 – IE – RBI} RBI’s surplus transfer

• Context (IE): The central board of the Reserve Bank of India (RBI) approved a transfer of Rs 2.11 lakh crore as surplus to the Central Government for the accounting year 2023-24.

• This surplus transfer to the government is a 141 per cent jump over the last year’s (2022-23) transfer.

Credit: TH

Factors behind record surplus payout by RBI

• Higher income from its foreign exchange holdings.
• Higher interest income on domestic as well foreign securities it holds in the wake of high interest rates in India and abroad.
• Increase in the prices of gold.

How would the record transfer help the government?

• Higher-than-budgeted RBI surplus transfer would help to boost the government’s resource envelope in FY2025, allowing for enhanced expenditures or a sharper fiscal consolidation.
• The government can reduce its dependence on market borrowings, thus, lowering borrowing costs. If the government borrowings are lower, it will soften yields, bringing in respite in the bond market.

What is the surplus income?

• The surplus income of the RBI that is transferred to the government is the difference between RBI’s income and expenditure, including the provisions made for reserves and retained earnings.
• Under Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934, profits/surplus of the RBI are to be transferred to the government after making various contingency provisions and public policy mandates of the RBI, including financial stability considerations.
• The transfer is in accordance with the Economic Capital Framework (ECF) adopted by the RBI board, in line with the recommendations of the Bimal Jalan Committee.

Source of Earnings for RBI

• Profits derived from foreign currency assets like bonds, treasury bills, and central bank deposits.
• Earnings from local, rupee-based government securities and short-term bank lending, such as overnight.
• Management commission for managing the borrowings of both central and state governments.
• Regulation of banks and non-banking financial bodies.
• Commission from overseeing government transactions and specific underwriting endeavours.

Does the RBI pay tax on these earnings?

• Section 48 (Exemption of Bank from income-tax and super-tax) of the RBI Act, 1934, provides an exemption to the RBI from paying income tax or any other tax, including wealth tax.

Expenditure of RBI

• Expenditure on printing of currency notes.
• Salaries to staff.
• Commission to banks for undertaking transactions on behalf of the government across the country and to primary dealers, including banks, for underwriting some of these borrowings.

Factors influencing surplus income of RBI

• Investments
• Dollar holding valuation dynamics
• Currency printing fees
• Rupee depreciation

Why are these called transfers to the government rather than dividends?

• RBI is not a commercial organisation like banks and other companies owned or controlled by the government – it does not, as such, pay a “dividend” to the owner out of the profits it generates.
• Although RBI was promoted as a private shareholders’ bank in 1935 with a paid-up capital of Rs 5 crore, the government nationalised it in January 1949, making the sovereign its “owner”. This structural change means that instead of typical dividends, the RBI channels its net income to the government.

Globally, what are the rules relating to payment of dividends by central banks?

• The laws of many top central banks—the US Federal Reserve, Bank of England, German Bundesbank, and Bank of Japan—clearly state that profits must be transferred to the government or the treasury.

{GS3 – S&T – Tech} Electric Vertical Takeoff and Landing aircraft (eVTOL)

• Context (DTE): Electric Vertical Takeoff and Landing aircraft (eVTOL) are under consideration for approval in many countries.

• As the name suggests, it is an electric aircraft that can take off, hover, and land vertically.
• The United Kingdom may see the first eVTOL flying taxi flight in the country by 2026.
• However, the Indian government has yet to establish clear policies regarding eVTOL flying taxis.
• Lilium (a German company), the Indian Institute of Technology, the Madras-incubated ePlane Company, and Airbus are among the companies working on the eVTOL.

Benefits of eVTOL

• It needs less fuel and low maintenance costs. It does not need an elaborate helipad and can function on any open ground or rooftop.
• It is expected to cut through road traffic for daily commutes, cargo deliveries, and even military purposes.
• Also, they will be flying much closer to the ground, unlike traditional aircraft.
• This technology is extremely beneficial for emergency situations such as urgent medical care.

{Prelims – Envi – Species} Flamingos

• Context (IE): Around 39 flamingos were found dead in different locations of Ghatkopar East after they collided with an Emirates aircraft landing at the Mumbai airport.

Credit: TOI

• Flamingos are large shore birds with S-like long necks, sticklike legs.
• There are 6 species of flamingos in the World:
  1. Greater flamingo (Phoenicopterus roseus)
  2. Chilean flamingo (Phoenicopterus chilensis)
  3. American flamingo or Caribbean (Phoenicopterus ruber)
  4. Lesser flamingo (Phoeniconaias minor)
  5. Andean flamingo (Phoenicoparrus andinus)
  6. James’s flamingo or Puna Flamingo (Phoenicoparrus jamesi).
• Distribution: They are found in tropical and subtropical areas. In India, 2 species of flamingos are found – Greater and Lesser Flamingo.

Credit: My nature stories

• Habitat: Shallow eutrophic waterbodies such as saline lagoons, saltpans and saline or alkaline lakes. Flamingos are a social species, choosing to live in flocks of hundreds or even thousands of individuals.
• Their colour can vary from white to pink to orange, depending on their diet. The amount of pigment in their food determines the shade of their plumage.
• Diet: Algae, molluscs, and crustaceans.

Greater Flamingo (Phoenicopterus roseus)

• Greater flamingo is the most widespread and the largest flamingo species.
• Distribution: It is found in Africa, the Indian subcontinent, the Middle East, and southern Europe. It is found almost all over India (except the high-altitude Himalayas, East and NE India).
• Habitat: They are found in both brackish and fresh water wetlands.
• Conservation Status: IUCN: Least Concern | CITES: Appendix II.
• It is the state bird of Gujarat.

Lesser Flamingo (Phoeniconaias minor)

• Lesser Flamingos are the smallest species of flamingo.
• Distribution: They are restricted largely to western India’s brackish water places like Gujarat, Rajasthan and Mumbai.
• Habitat: They prefer brackish and coastal waters.
• Conservation Status: IUCN: Near Threatened | CITES: Appendix II.