Journal Press India^®

Author Details ( * ) denotes Corresponding author

The research assesses the feasibility of introducing Environmental, Social, and Governance (ESG) derivatives in India’s financial markets by examining stakeholder awareness, risk management potential, and regulatory hurdles. Using a mixed-method approach, the study evaluates survey responses regarding awareness, perceived benefits, and obstacles to implementing ESG derivatives. Findings indicate a significant level of stakeholder awareness of ESG derivatives, with substantial recognition of their role in climate risk management and governance improvement. However, market readiness remains a concern, with regulatory gaps and investor hesitancy posing key challenges. The study recommends standardizing regulations through SEBI-RBI collaboration, market incentives including tax breaks, liquidity support, and capacity-building initiatives such as NISM certifications, and fintech integration. Successful adoption of ESG derivatives could unlock $50 billion in assets by 2030 (CRISIL, 2024), aligning India’s financial market with its net-zero goals (MoEFCC, 2022).

Keywords

ESG derivatives; Sustainable finance; Climate risk hedging; Regulatory frameworks; Green finance

1. Barrera, L. C. A. (2024). The law of ESG derivatives: Risk, uncertainty and sustainable finance. Taylor & Francis. London, UK: Routledge.
2. Berg, F., Kölbel, J. F. & Rigobon, R. (2022). Aggregate confusion: The divergence of ESG ratings. Review of Finance, 26(6), 1315-1344.
3. Bharath, V., Dileep, N. & Kotreshwar, G. (2022). Evaluating the monsoon (rainfall) risk profile for the feasibility of rainfall derivatives instrument in India. Mudra: Journal of Finance and Accounting, 9(1), 56-74.
4. CRISIL. (2023). CRISIL Sustainability yearbook. Retrieved from https://apar.com/wp-content/uploads/2023/03/APAR_CRISIL_REPORT_2022.pdf
5. CRISIL. (2024). ESG financing in India: Unleashing the next wave of growth. Retrieved from https://nsearchives.nseindia.com/corporate/CRISIL_22032024125907_SignedBSENSEfinal.pdf
6. Chandavar, V., Gadade, K. & Patil, S. (2022). Risk-return analysis and portfolio construction of S&P BSE-30 listed companies. Mudra: Journal of Finance and Accounting, 9(2), 39-59.
7. Dutta, E., Diwan, S. & Chakrabarty, S. P. (2024). ESG driven pairs algorithm for sustainable trading: Analysis from the Indian market. Retrieved from https://ideas.repec.org/p/arx/papers/2401.14761.html
8. Dyck, A., Lins, K. V., Roth, L. & Wagner, H. F. (2019). Do institutional investors drive corporate social responsibility? International evidence. Journal of Financial Economics, 131(3), 693-714.
9. Eurex. (2022). ESG Index derivatives. Retrieved from https://www.eurex.com/ex-en/markets /idx/equity-index-esg
10. European Securities and Markets Authority. (2022). Sustainable finance roadmap 2022-2024. ESMA. Retrieved from https://www.esma.europa.eu/sites/default/files/library/esma30-379-1051_sustainable _finance_roadmap.pdf
11. European Commission. (2021). Regulation (EU) 2019/2088 on sustainability-related disclosures in financial services sector (SFDR). Official Journal of the European Union, L 317, 1-16.
12. Global Sustainable Investment Alliance. (GSIA) (2022). Global sustainable investment review. Retrieved from https://www.gsi-alliance.org/wp-content/uploads/2023/12/GSIA-Report-2022.pdf
13. Gossain, R. (2023). Legal underpinnings drive ESG amidst global flux. Paradigm, 27(1),  27-46.
14. International Swaps and Derivatives Association. (ISDA) (2021). Derivatives in sustainable finance. Retrieved from https://www.isda.org/a/KOmTE/Derivatives-in-Sustainable-Finance.pdf
15. International Swaps and Derivatives Association. (ISDA) (2022). Retrieved from https://www.isda.org/a/3U2gE/SEC-filed-ISDA-ESG-funds-letter-081622.pdf
16. Jain, A. (2022). The riskiness of banks: an empirical analysis of the depositor’s sensitivity. Mudra: Journal of Finance and Accounting, 9(1), 19-35.
17. Kanamura, T. (2025). Sustainability arbitrage pricing of ESG derivatives. International Review of Financial Analysis, 104(Part A), 104177.
18. Kant, A. & Sagar, S. (2024). Harmonizing finance for a sustainable future: Insights, innovations, and roadmaps. In Green Solutions: A Handbook for Sustainable Business Strategies and Models (pp. 129–134). Bharti Publications.
19. Khan, M., Serafeim, G. & Yoon, A. (2016). Corporate sustainability: First evidence on materiality. The Accounting Review, 91(6), 1697-1724.
20. Kumar, S. (2023). A review of ESG integration & return of financial instruments in various market segment and societies. Academy of Marketing Studies Journal, 27(3), 1-4.
21. Lannoo, K., & Thomadakis, A. (2020). Derivatives in sustainable finance (ECMI Paper No. 29791). Centre for European Policy Studies (CEPS) & European Capital Markets Institute (ECMI), Brussels, Belgium.
22. Malik, R. & Garg, S. (2024). Drivers for green banking adoption: Diffusion of innovation theory and TAM perspective. MUDRA: Journal of Finance and Accounting, 11(2), 167-183.
23. McKinsey & Company (2023). ESG report: Executive summary. Retrieved from https://www.mckinsey.com/~/media/mckinsey/about%20us/social%20responsibility/2023%20esg%20report/mckinsey-and-company-2023-esg-report-executive-summary.pdf
24. Ministry of Environment, Forest and Climate Change. (2022). India’s long-term low-carbon development strategy. Government of India. Retrieved from Retrieved from https://moef.gov.in/uploads/2022/11/Indias-LT-LEDS.pdf
25. Nandwani, S. & Japee, G. (2024). Investigating the risk-return and volatility of the environment, social and governance index and the benchmark indices. MUDRA: Journal of Finance and Accounting, 11(1), 104-126.
26. Reserve Bank of India (RBI). (2023). Framework for acceptance of green deposits. Retrieved from https://www.rbi.org.in/commonperson/english/Scripts/FAQs.aspx?Id = 3545
27. Securities and Exchange Board of India. (SEBI) (2021). Business responsibility and sustainable reporting framework. Retrieved from https://www.sebi.gov.in/legal/circulars/may-2021/business-responsibility-and-sustainability-reporting-by-listed-entities_50096.html
28. Securities and Exchange Board of India. (SEBI) (2023). Retrieved from https://www.sebi.gov.in/legal/circulars/jul-2023/brsr-core-framework-for-assurance-and-esg-disclosures-for-value-chain_73854.html
29. Task Force on Climate-related Financial Disclosure. (2017). Final report: Recommendations of the task force on climate-related financial disclosures. Retrieved from https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf
30. Van Rensburg, P. W. J. (2024). Advancing ESG objectives with ESG-linked derivatives. In Sustainable Finance and ESG-related Risk Management Studies.
31. Varottil, U. (2024). The legal and regulatory impetus towards ESG in India: Developments and challenges. In Research Handbook on Environmental, Social and Corporate Governance (pp. 462-479). Edward Elgar Publishing.
32. Xiong, M., Liu, C. & Xiang, J. (2024). How financial derivatives affect energy firms’ ESG. Energy Economics, 140, 108028. Retrieved from https://doi.org/10.1016/j.eneco.2024.108 028