OPINION: Green finance — need of the hour for net-zero transition — is gaining momentum in Indian economy!
For instance, banks, mostly international, have now started offering green loans with favourable terms to businesses that invest in sustainable projects. Institutional and other investors buy debt securities such as green bonds that finance environmentally friendly projects. Venture capital firms and private equity investors actively fund start-ups and early-stage companies that focus on sustainability and reducing environmental and social impact.
These are, however, early days, and various organisations as well as policymakers are at different stages of the sustainability journey. But the realisation across the board is that the strategies to transition to ‘net zero’ will require significant investment.
Slow but steady
With companies in India exploring various financing options to support the development of capital-intensive technologies such as hydrogen or carbon capture, green finance is gathering speed.
India's requires INR 1.5-2 trillion annual Foreign Direct Investment (FDI) in renewable energy alone, as per the Ministry of New and Renewable Energy’s report on financial constraints in the sector. To address this, the government has authorised 100% annual
Private sector companies are investing in green projects as they see the potential for long-term returns and positive environmental impact. The market for
As reporting norms such as the Business Responsibility and Sustainability Report (BRSR) take shape, bond-issuing companies will likely witness higher credit ratings, expanding the market for such debt instruments.
According to a
In addition to government agencies and domestic companies, international organisations such as ADB and World Bank have also increased their funding for green projects in India to reduce the gap in commercial investments in renewable energy and boost the confidence of various stakeholders.
Future of green finance in India
AdvertisementGiven the government's push for sustainable development and the increasing need among businesses and investors to develop strong sustainability credentials, the
As the demand for green finance grows, we can expect to see more innovative financing solutions and investment opportunities in the green sector in India!
In March, the Securities and Exchange Board of India (SEBI) introduced an ESG category of mutual funds. Asset management companies in India can now launch more than one ESG fund, and as reporting on such parameters improves, the increased rigour and transparency will boost investor confidence.
While we look forward to government action on green financing, including tax breaks for low-carbon technologies, policy pushes for green financing instruments etc., it is equally important for private sector organisations to adopt internal carbon pricing to promote investment in green technologies and solutions.
These are early days and as processes mature, green finance and other modes of investments will gain standardised definitions and measurement frameworks. Visibility in performance and impact assessment will improve the comparison and selection of funds and companies. The intersection of the use of technology in tracking emissions, tighter reporting requirements, and better governance will help fine-tune as well as improve transparency in companies’ green credentials, which will, in turn, strengthen investor confidence and quell fears of greenwashing.
AdvertisementThere is a need for greater transparency, standardisation, and education around relevant metrics and their impact on financial performance. India, as the third largest CO2 emitter and the most populous country, is a contributor as well as the beneficiary of this evolution.
While green finance may not be a silver bullet for addressing environmental and social challenges, it is critical in promoting sustainable and responsible investment practices and encouraging companies to prioritise these issues. We need government, academia, and industry collaborations, advocacy on new policies, and public-private partnerships to ensure that innovative green financing mechanisms are rolled out to boost the transition to a net zero economy by 2070.
Saunak Saha is Partner, Climate Change and Sustainability Services at EY India.
Disclaimer: The opinions expressed are of the author/interviewee and do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.
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