| Date | Version | April 01, 2022 | 1.0 |
| Keywords | ‘Green Financing’, ‘Cop 26 Summit’, ‘Environment’ |
| List of Legislation Referred |
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| Jurisdiction | India |
Abstract: In its workshop organized recently, the NITI Aayog and WRI India emphasized the importance of green financing in decarbonizing the country’s transport sector. Green Financing, thus, is the way forward towards achieving the target of net-zero emissions set forth by India in the COP26 Summit. The article highlights the current position of green financing and its future in India, focusing on government initiatives and the way ahead.
GREEN FINANCE – WHAT IS IT, AND WHY DO WE NEED IT
Environmental conditions, not just in India but globally, are degrading each day. The solution is to shift from conventional to renewable energy sources. Unlike conventional energy, renewable energy requires a massive outlay, making “green financing” essential.
“Green finance” refers to financial arrangements facilitating environmentally friendly projects, assisting nations in achieving their environmental goals.
Global warming levels underscore the importance of green finance. The COP26 Summit emphasized increasing public and private funds for sustainable projects and requiring financial institutions to integrate emissions assessments into investments.[1]
INDIA AND GREEN FINANCE
The UN Environment Programme predicts global temperatures could rise over 3°C this century without action.[2] Swiss ReInstitute research estimates a 10% loss in total economic value by 2050.[3] This shows even climate-conscious countries must consider economic effects of climate change.
India has ambitious targets: cut emissions to net-zero by 2070 and increase non-fossil fuel energy capacity to 500 GW.[4] Steps towards fostering green finance began as early as 2007 with RBI issuing CSR notifications and the Government forming the Climate Change Finance Unit in 2011.[5][6]
RBI Master Directions classify “renewable energy” under the priority sector, allowing borrowing for solar/non-conventional energy projects up to ₹30 crore and households up to ₹10 lakh. RBI also joined the “Network for Greening the Financial System” to support a green economy.[7][8]
GREEN DEAL – 2070
According to Mission 2070: A Green New Deal for a Net-Zero India, India’s net-zero transition could create 50 million jobs and $1 trillion economic impact by 2030, $15 trillion by 2070.[9] Investments of $10 trillion are required by 2070.[10]
GREEN BONDS
Green Bonds fund environmentally beneficial projects. However, vague provisions and regulatory uncertainty reduce investor interest. High issuance costs and asymmetric information also impede uptake.[12] Most issuers are PSUs or companies with low debt-to-asset ratios.[14]
SUGGESTIONS
- Incentivize Green Bonds
Provide tax exemptions/deductions to subscribers to encourage issuance.
- Revision to Green Taxonomy
EU Green Bond Standard defines criteria: project contribution, no harm to other objectives, compliance with minimum standards.
- Borrowing cost
Improve information management to reduce issuance costs and maturity mismatches.[15]
- Market Infrastructure Development
Better coordination between investment and environmental policies, standardization, and transparency in green finance markets.
- Related initiatives
Engage industry bodies for green buildings and non-conventional energy to assess financial and operational needs.
ENDNOTE
Real change occurs when compliance, willingness, and direct incentives align. The views expressed are personal and do not necessarily reflect Alaya Legal’s opinion.
