OPINION: As India seeks $293 billion for renewable energy transition, how can we get more bang out of each green buck?

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OPINION: As India seeks $293 billion for renewable energy transition, how can we get more bang out of each green buck?
Can we get more value from the significant investments going into renewable energy in India?
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India needs to see USD 293 billion of investment made between 2023 and 2030 to meet our ambitious renewable energy (RE) targets, according to Ember, with an additional USD 101 billion required to align with the IEA Net Zero Pathway. This finance is needed to not only build capacity in solar and wind itself, but also the supporting transmission and storage infrastructure.

This sum is significant by any measure, making it imperative that it is well-directed. For size comparison, India’s government spending on roads would be USD 230-265 billion over the same period, should recent trends continue. There are many other agendas that also require this funding. So what if this finance was “multi-solved”? What if it contributed to the decarbonisation of our energy system and helped advancement on health, meaningful livelihoods, economic and infrastructure resilience, while improving food, water and materials security and a stronger social fabric? What if financiers could ensure this money could fund more than just decarbonisation of the energy system, and quickly?

To a certain extent, we can see evidence of increased awareness and intent for this multi-solving among the seven major types of financiers of RE in India (see diagram below). But evidence found through a Dalberg and Responsible Energy Initiative study suggests we’re definitely not getting the best bang for their buck.

ESG integration has become more common parlance across all RE financier types, indicating greater awareness of the need to consider environmental, social and governance factors within decision-making. Thematic investing is also growing, where investments target specific sustainability themes such as clean energy or the circular economy. Some mechanisms have become so mainstream that the government is using them widely. For instance, the 2023-24 budget included initiatives to scale RE that were funded by green bonds.

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ESG integration and thematic investing practices are playing a part in driving greater finance towards RE, but they are not yet enabling RE financiers to support developers or manufacturers to multi-solve. To do this, financiers need to move more towards investing for impact where they intentionally seek positive social or environmental impact alongside financial return, or even shareholder engagement, “suggestivism” or activism, where they actively engage with RE companies to enable and promote sustainability practices.

Dalberg and Responsible Energy Initiative research suggests that, of the seven major types of RE financiers in India, the multilateral or bilateral development banks and finance institutions and the international pension funds have the strongest awareness, intent and capability to practice this shareholder engagement. Various examples were found of these types of financiers working to enable their RE investees to address decarbonisation while contributing to aims such as circularity, rural economic revitalisation and provision of climate-resilient infrastructure.

The research found, however, that the development banks are the only type of financier that generally holds the capability to enforce sustainability standards and encourage greater impact post-investment. Even then, monitoring challenges means this is not the universal practice with all the projects they finance.

Awareness and intent within foreign banks, sovereign wealth funds and private equity are certainly growing. In general, however, they are all still some way off supporting RE to multi-solve. Their understanding was found to be generally limited to ESG compliance and a net-zero goal. This means RE projects are often considered inherently sustainable, and therefore do not need support to realise more environmental and social goals — which is certainly not the case in reality. All financiers felt less able to consider social impacts due to complex quantification methods and varying global standards.

Whilst global dialogue and stakeholder pressure (for instance from LPs and employees) is driving greater intent across all financier types, equity investors find it difficult to quantify the impact of more responsible investment processes (like shareholder engagement) on exit value, thus limiting their intent to act. There are some notable exceptions to this generalisation; for instance, TPG investors work to advise their RE investees on sustainability practices. However, these are islands of excellence in a large sea.

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Domestic banks in the majority lag behind in terms of awareness, intent and capability to engage in multi-solving due to low perceived legal and business risks. Anecdotal evidence suggests for instance that very few loan providers and relationship managers feel able to place or manage sustainability conditions on their lending to RE value chain members. Banks such as Axis Bank and Yes Bank have been working to improve this.

So what might the seven types of financiers do to enable the RE sector to multisolve, therefore getting more impact bang for their buck?

The first step for all types is to acknowledge the need to move from managing risk through ESG integration, to also intentionally seeking holistic positive benefit beyond net zero. The development banks and pension funds can lead this shift in narrative and intent, enabling the others to learn from their examples, contextualising the learning to the needs of each financier type.

The second step is to move from intent to action. This means a broadening of what we mean by return to include impact and actively seeking to drive multiple positive impacts through each investment decision. This might require looking at longer time horizons than some investees are used to in order for the social and environmental benefits to be realised. This would inadvertently mean challenging some entrenched narratives around return periods.

The third step is to see the role of financiers as enablers beyond the straightforward provision of capital. For instance, this may be through building in incentives for greater impact during the life of the plant and their financing. It may also be about taking a clear stand on specific issues, as Eventide has on forced labour for instance, and engaging and collaborating with investees to overcome challenges. We need to move beyond collecting data on surveys to building knowledge and trying solutions together.

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We don’t have much time. At least USD 293 billion will be spent on RE in India alone by 2030. By taking the above steps, all types of financiers of the transition to RE can ensure that we get the maximum value from that money. RE can enable not just the decarbonisation of our electricity system, but also enhance health outcomes, meaningful livelihoods, and economic and social resilience.

Anna Biswas is a Managing Director at the Forum for the Future India.

Disclaimer: The opinions expressed by the author/interviewee do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.
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