Challenges to accessing climate finance: I would like to express gratitude to the Policy Circle for providing us with the invaluable opportunity to engage in deep and iterative discussions on this critical matter. As I endeavour to convey my thoughts, I must acknowledge the insightful introduction that has been presented, which comprehensively delves into the urgent climate risks and the potential for resource mobilisation.
I agree that the urgency of addressing climate concerns must not overshadow our broader environmental responsibilities. While climate change is paramount, we must not overlook other vital issues such as biodiversity, pollution, land degradation, and ecosystem preservation. These multifaceted challenges demand equitable solutions as we embark on the profound transformation of our economic systems.
Hurdles to equitable climate finance
There are several shortcomings in the International Financial Architecture, which has struggled to promptly deliver the essential funding required. This underlines the paramount importance of aligning scientific insights with political resolve to avert climate breakdown.
India finds itself navigating the simultaneous currents of climate transition and economic development. Ensuring these transitions complement, rather than conflict with each other, is of utmost importance. As we contemplate the allocation of resources, we must bear in mind the spectrum of financial sources—ranging from grants to commercial capital—hailing from both domestic and international avenues.
The discourse shifts towards climate risk, with regulators taking proactive strides to incorporate climate considerations into banks’ risk management frameworks. The Reserve Bank of India’s discussion paper from last year advocates this integration, highlighting the unique nature of climate risk disclosure rooted in future scenarios. The forthcoming guidance from the Reserve Bank will undoubtedly provide clarity on banks’ roles in this complex landscape.
Directing our focus to resource mobilisation, the potential of green bonds emerges as a significant opportunity. These bonds not only beckon corporates to realign their capital expenditures but also beckon financial institutions to play a vital role in resource generation. The thematic debt capital market, encompassing various forms of green, sustainable, and ESG-linked instruments, has experienced substantial growth globally. While India’s contribution to this market has reached approximately $30 billion, the potential is immense, especially considering the renewable energy sector’s promise.
Overcoming barriers such as the cost of capital, project bankability, and pipeline visibility is crucial to realising the financial inflow required for sustainable development. The success of the Sovereign green issuance underscores domestic investors’ appetite for sustainable investment opportunities. This sentiment should encourage the growth of local thematic bond markets, necessitating regulatory support and incentives.
National Development Banks (NDBs) emerge as pivotal entities within India’s financial architecture. Institutions like NABARD, SIDBI, and others hold the potential to be powerful agents of change. Their strategic repurposing, aligned with climate and ESG goals, can significantly accelerate sustainable development.
The urgency lies in developing a comprehensive and actionable sustainable investment strategy. While multilateral development banks have encountered challenges, the GCF’s collaboration with NDBs could prove transformative. However, the present scenario suggests a need for more targeted engagement and an amplified deployment of funds.
It is important to align climate action, financial innovation, and policy coherence to forge a transformative path towards sustainable development. As India pursues conflicting goals of climate transition and economic growth, clear policy signals, institutional finance and green bonds will play pivotal roles in achieving a harmonious and prosperous future.
To catalyse this transformation, clear policy signals, sectoral transition pathways, and mechanisms like taxonomy adoption are imperative. The harmonious coalescence of science, policy, and financial innovation will be our beacon on this transformative journey. The path ahead may be intricate, but with collective wisdom and resolute action, we can forge a sustainable and prosperous future.
(Neha Kumar is Head of South Asia Programmes at Climate Bonds Initiative. This article is the edited transcript of her speech at the India Sustainability Summit 2023, organised by Policy Circle on July 26 at the India International Centre, New Delhi.)