OPINION: Green financing in India — Need, significance, urgency, and way forward

The United Nations Framework Convention on Climate Change (UNFCCC) initiated an international environmental treaty to counter "dangerous human interference with the climate system". The nationally determined contributions or the NDCs are the first greenhouse gas emission reduction targets under the UNFCCC applicable to developed and developing countries like India. Using NDCs, governments can also communicate the steps they will take to address climate change in their countries.
As per its NDC, one of India’s objectives is to reduce the intensity of carbon emissions by 33 to 35% by 2030 and create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 through afforestation. In 2021, at the UN Climate Change Conference in Glasgow (COP26), India reiterated the goals, including a spike in the country’s non-fossil fuel-based energy capacity to 500 GW, meeting 50% of the country’s energy requirements using renewable energy sources, reducing the total projected carbon emission by one billion tonnes, and reducing 45% carbon intensity by 2030.
The highlight of India’s renewed commitment to climate action was its long-term mission to achieve net-zero emissions by 2070! But how will we get there? According to the CEEW-Centre for Energy Finance, we need more than $10 trillion in investment to achieve this green goal. That is not a small amount, and that is where green financing can play a critical role!

What exactly is Green Financing?

The UN Environment Programme defines 'Green Financing' as the inflow of finances from private, not-for-profit sectors, and public organisations for the cause of sustainable development. And it makes good business sense too! A study by NYU Stern Center for Sustainable Business observes that a company's financial performance is directly proportional to its implementation of sustainable practices.
With this long-term vision that blends profitability with sustainability, corporates, central banks, and governments are increasingly formulating green finance policies and frameworks. The U.N. identifies three main green finance strategies: aiding the public sector, assisting public-private partnerships, and building capacities for community enterprises on micro-credit.

Why is Green Financing smarter?

Green Financing is critical because it underscores inclusive growth, resulting in energy-efficient, eco-sensitive environments. It also gives institutional shareholders interested in impact investing a chance to make a measurable social and environmental difference.
A case in point is JPMorgan Chase & Co., which has set an investment target of more than $2.5 trillion over ten years to advance climate action and sustainable development. In 2020, Goldman Sachs also decided to back climate transition and inclusive growth with an investment of over $750 billion.
That we need more such investments in India goes without saying, considering we need investment in hydro, geothermal, biogas, and wind energy to transition from fossil fuels. We also need investment in vehicles that emit less greenhouse gas emissions, efficient systems of waste disposal, and large-scale recycling processes.

Why is Green Financing critical for India?

The latest UN Intergovernmental Panel on Climate Change (IPCC) report has warned that unless greenhouse gas emissions are drastically reduced by 2030, it will become impossible for India to reverse a climate catastrophe. Many parts of the country will likely turn inhabitable due to extreme heat, with wet-bulb temperatures breaching 32°C.
Climate change will lead to 40% of India's population facing water scarcity by 2050, while megacities like Mumbai and Chennai will be affected by rising sea levels. Floods will become frequent in the Ganges and Brahmaputra basins, and crop production will also be impacted. However, the brunt of climate change will be borne by India's economically and socially marginalised citizens!
But with the help of domestic policies, international financial help, and private investments, we can address this issue. If we don't, the International Labour Organization (ILO) has predicted that by 2030, 34 million full-time jobs will be lost, especially in the farming community.
Considering these factors, in the 2022 Union Budget, the government has initiated steps like green bonds and aid for climate-friendly projects. Still, the country must also pool more finance from multilateral and international sources.

Green Financing in India

India issued around $6.11 billion of green bonds in just over 11 months in 2021 to fund positive environmental and/or climate benefits projects. Though we trail behind only the US and China in the green bonds market, a minuscule amount of international interest is expected as foreign players tend to look for risk-free processes, standardised tax structure, and a regulated financial infrastructure before considering a long-term investment. The UN Environment Programme (UNEP) also notes that developing countries need a robust banking system to attract green finance.
Acknowledging the challenges ahead, The Reserve Bank of India, in its Trend and Progress of Banking in India Report (2018-19), highlighted how financial assets will be at risk due to climate change and why green finance needs to be further enhanced for a sustainable and green economy.
One of the hurdles in the green financing boom is greenwashing, which refers to misleading information suggesting that products or investments are more environmentally sensitive or green than they really are. Experts fear that green bonds may be used for activities that result in adverse environmental impact; hence, stringent systems need to be put in place to discourage and weed out such discrepancies.

The path ahead

At the Bonn Climate Change Conference last month, India strongly emphasised the need for finances to mitigate the impacts of global warming. Indian delegates also demanded that wealthy nations support India and other developing countries needing significant investments through a loss-and-damage finance facility. They argued that since India is already susceptible to lose and damage due to climate change, it needs help to build early warning systems to prepare for disasters and also for recovery and reconstruction.
Even though India has initiated steps for green finance and has been ahead of other countries, it still has a long way to go. I cannot help repeating that we need a successful integration between a competitive tax regime, trustworthy financial products, and clear green guidelines to attract more funding.
Green financing and sustainable economic growth are not just distant dreams. They are achievable in the here and now with cohesive cooperation between policymakers, private, and public enterprises and a steady eye on the big picture.
Alok Bansal is the MD of Visionet Systems India and Global Head of BFSI Business
This column is part of a year-long (2022-23) campaign on the theme “Only One Earth: Sustaining People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.
SEE ALSO:
OPINION: Creating a truly diverse and inclusive workplace — Sustainability through inclusivity
OPINION: Fostering sustainable leadership in businesses to ensure better corporate governance
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.