Securing Our Tomorrow: Ensuring Effective Climate Finance for India

India has made commendable progress by committing to net-zero targets and accelerating the deployment of renewable energy. Nevertheless, it is imperative to draw a clear roadmap with mutually agreed milestones and mobilise financial resources for climate action to secure a sustainable future.

India’s vulnerability to climate change is becoming increasingly apparent, with nearly one percent of our annual GDP lost due to the increasing frequency of natural disasters linked to climate change. This reality is being recognised by a growing number of Indians who are concerned.

Although we have made commendable progress in stating net-zero targets and accelerating the deployment of renewable energy, there remains a significant task of drawing up a roadmap with agreed milestones, particularly to address previously missed opportunities.

The biggest challenge lies in financing climate action. According to the Climate Policy Initiative, only about $44 billion of climate finance was mobilised in 2021, about a quarter of the amount needed. The majority of this funding was directed towards mitigation projects, particularly renewable energy initiatives. Domestically, about 85 percent of the financing came from within the country, with a 60:40 split between the private and public sectors.

Clearly, there is an urgent need to increase financing as well as implement supportive policies and business models, especially in historically underinvested areas. Cities, in particular, need to be prioritized due to their sensitivity to climate impacts and significant energy consumption.

Emphasis should be placed on financing solutions that provide the greatest return on investment, such as energy conservation, decentralized energy generation and increasing public transportation. On the adaptation front, initiatives such as reviving water bodies, promoting urban forests and vertical gardens, recycling plastic waste and building sea walls in coastal areas should be given priority. Forestry, land use and agriculture also warrant substantial investment at the national level.

India’s vulnerability to climate change is becoming increasingly evident, resulting in a loss of approximately one per cent of our annual GDP due to the increasing occurrence of climate-related natural disasters. This growing concern has been acknowledged by an increasing number of Indians.

While commendable progress has been made in declaring net-zero targets and accelerating the deployment of renewable energy, drawing up a roadmap with agreed milestones remains an important task, especially to improve previously ignored opportunities .

The biggest challenge lies in financing climate action. According to the Climate Policy Initiative, only about $44 billion of climate finance was mobilized in 2021, about a quarter of the amount needed. A significant portion of this funding was allocated to mitigation projects, particularly initiatives in renewable energy. Domestically, about 85 percent of the financing originated from within the country, with a 60:40 split between the private and public sectors.

It is clear that there is an urgent need to boost financing while concurrently implementing supportive policies and business models, particularly in historically underinvested regions. Cities, being particularly vulnerable to climate impacts and major energy consumers, need to be prioritized.

Efforts should focus on financing solutions that deliver the highest returns on investment, including energy conservation, decentralized energy generation, and improving public transportation. On the adaptation front, initiatives such as restoration of water bodies, promotion of urban forests and vertical gardens, plastic waste recycling and construction of sea walls in coastal areas should be given priority. Forestry, land use and agriculture also demand substantial investment at the national level.

The Ministry of Finance (MOF) has the potential to lead innovative policies such as sustainable procurement, which can integrate sustainability into product design and value chains. This approach will facilitate widespread adoption of nature-based solutions and optimise energy consumption while addressing investment needs.

Furthermore, broader policy actions regarding carbon taxation, subsidies and investments in fossil fuels should be viewed from a holistic economic perspective. This will ensure cohesive efforts across different levels of governance within the economy – Centre, State, City and Region. We do not advocate a return to centralised planning,Rather, they advocate prioritising climate investments to streamline needs. Without consensus on such a roadmap, combating climate change will remain difficult and costly.

While the MoF can drive fiscal policy and budget allocation, it is mandated to collect and invest funds from various sources. Structuring annual investments of more than $100 billion requires substantial institutional capacity. Therefore, the second strategic intervention should focus on catalysing a Green Bank dedicated to mobilising and channeling climate finance.

Several global precedents, including various regional green banks in the US as well as initiatives in Australia, Malaysia and the UK, have established specialized institutions and banks to direct investment towards green infrastructure. A dedicated institution will provide the necessary focus.

A green bank is also well suited to expand on recent successes with sovereign green bonds and develop other specialised bonds such as sustainability bonds, impact bonds, disaster bonds and blue bonds.

India’s Nationally Determined Contribution (NDC) depends on low-cost international finance, but its role has so far been marginal. Therefore, the third set of strategies should focus on attracting international capital of $10-20 billion annually.

Accelerating international funding requires policies and strategies aimed at attracting new investors, particularly from substantial capital pools such as sovereign wealth funds, pension and insurance funds.

Establishing a pipeline of overall investable projects can encourage action on smaller endeavors that might not otherwise be attractive to larger investors. Cities, distribution companies, and other major corporations can serve as aggregators for decentralized projects, facilitating the raising of funds. Scaling up international climate finance for cities will also depend on urban reforms, including devolution of functional and financial powers to urban local bodies (ULBs).Such reforms will empower cities to access international funds through accredited agencies, with entities like SIDBI and NABARD already recognised. Although much remains to be achieved, ideally each state should have at least one recognised agency.

Several states, including Karnataka, Andhra Pradesh, and Tamil Nadu, boast of existing urban development and finance corporations – namely KUIDFC, APUIAML, and TNUIFL respectively – that have the necessary expertise and institutional framework to be accredited.

As evidenced, awareness and concern about climate change is increasing among Indians, with recent research from the Yale School of Environment indicating that more than 80 percent of Indians are skeptical about global warming.

Climate action is the paramount challenge of our time and raising finance for it is a litmus test. The imperative is clear: we must act immediately and strongly not only to invest in our future, but to ensure that that future exists.