Green financing: Aligning with the new reality

While the transition is gaining momentum, India has a significant task of attracting approximately $1 trillion in investments by 2030 to meet its climate targets and fulfil its green financing objectives.

Shifting tack requires a great deal of co-ordination, agility and unwavering commitment towards goals and objectives. It is understandable why some business corporations may be dithering towards making the shift and here is where the role of financial institutions comes in. Lenders need to realise they need to adopt an evolved strategy to help their clients meet sustainability targets. Practical and impactful solutions are needed to resolve the stress points in embracing this transition. India is in seventh position in list of countries affected by the climate crisis but has not been able to effectively tap into climate capital inflows. Indian enterprises are racing against the clock to achieve sustainability goals and it is imperative for financial institutions to harness emerging financial technologies for the efficient delivery of services. The financial institutions must also embolden organisations to bring in behavioural changes as the shift towards a low-carbon economy needs to be ushered in at a macro level.

Big corporations will find it relatively easy to make the transition but small entities will find it challenging to move to sustainable practices if timely access to capital is not made available to them. Lenders must focus on firms looking to work in areas and products which will help in mitigating adverse impact from the climate crisis. Underscoring the government’s commitment, Prime Minister Narendra Modi has emphasised the need for low-cost financing initiatives to promote green energy. The ambition is to become a global hub for green hydrogen, and its policy framework is finely tuned to achieve this aspiration.

Banks and Non-Banking Financial Companies (NBFC) have recognised the perils of the climate crisis and have raised their ambitions concerning green financing. A Bloomberg report highlights that JPMorgan Chase & Co has set emissions-reduction targets for airlines, cement manufacturers, iron-ore and steel companies, in addition to its earlier objectives in the oil and gas, electric-power, and auto-manufacturing sectors. A report by the Reserve Bank of India underscores that the country's green financing requirements are estimated to be at least 2.5% of Gross domestic product (GDP) annually until 2030. It also emphasises that the financial sector faces the dual challenge of adapting its operations and business strategies to support the transition to green finance while bolstering resilience against climate-related vulnerabilities to ensure financial stability. The central bank notes that the financial system may need to mobilise substantial resources and reallocate existing ones to effectively contribute to India's net-zero target.

With a target of net zero emissions by 2070 hanging over us, all stakeholders must come together to ensure our future generations do not accuse us of being lackadaisical.

For any mass-level changes, mainstreaming the topic is extremely crucial for its success. The more people discuss the climate crisis and its debilitating impact, the more awareness it will create and the organic amplification will force lenders to take note of the growing discourse on the subject.

The journey ahead may be fraught with challenges, necessitating stakeholders to recalibrate their strategies in pursuit of sustainability goals, often requiring difficult decisions. Financial institutions must align themselves with this new reality and adopt a proactive approach to ensure the ultimate objectives are achieved.

The Loss and Damage Fund, established post-COP27, received initial contributions of approximately $400 million from countries like the United Arab Emirates, the United Kingdom, and Germany on day one of COP28. This fund addresses irreversible damages caused by climate events, particularly supporting vulnerable nations in recovery from extreme weather events and slow-onset issues.

India’s proactive steps in green finance are garnering international recognition. Financial institutions are playing a vital role in facilitating green investments but needing evolved strategies and tech adoption. Global efforts are being made, simultenously, to address climate impacts as they recalibrate strategies for sustainability, emphasising the need for mainstreaming climate discussions.

Every contribution is crucial as the world targets net-zero emissions by 2070 for a sustainable future.

This article is authored by Rakesh Kaul, CEO, Clix Capital.