Global development finance institutions and funds are ready to offer long-term support in the form of equity and debt at cheap rates to projects like solar energy and hydro power that help reduce the carbon footprint.
The Reserve Bank of India has raised ₹8,000 crore by selling sovereign green bonds in 2023 alone to fund such projects by government entities. In one of the recent deals, World Bank member International Finance Corporation (IFC) last week announced an about $50 million investment in a sustainability linked bond issued by Tata Cleantech Capital, which finances renewable energy projects.
India has been investing heavily in green energy to meet its aggressive targets on reducing carbon dioxide emissions and oil imports. This is among reasons attracting green financiers to the country.
“Increasing climate financing is key to supporting sustainable economic growth in India,” said Joon Young Park, portfolio manager at IFC’s Financial Institutions Group for South Asia.
India has updated its Nationally Determined Contributions, aiming to reduce the country’s carbon intensity by more than 45% by 2030 from its 2005 levels. Estimates by IFC suggest that India will need around $403 billion in renewable finance by 2030 to achieve its renewable targets.
As green finance is new, there are risks, but also mitigants.
Checking possible misuse of green finance is critical, said Rajesh Gupta, managing partner at SNG Partners, a law firm specialising in green finance. “Checks and balances are required at an early stage to ensure compliance and avoid hoodwinking by any unscrupulous group,” he said. “Self-awareness on good governance and the intangible benefits on reputation and goodwill is a compelling reason for corporate India to become more and more ESG (environmental, social and governance standards) compliant.”
On March 8, RBI governor Shaktikanta Das said the central bank would soon issue guidelines for regulated entities to increase green lending, accept green deposits and mitigate risks related to climate change.
Till 2021, as many as 21 countries had issued sovereign green bonds (SGBs), worth $187.8 billion. “India became the 22nd country to issue sovereign green bonds with RBI issuing sovereign green bonds worth nearly $3.0 billion (more than ₹24,000 crore) in 2022-23,” said a report by HDFC Bank.
“The proceeds will be deployed in public sector projects which will help in reducing the carbon intensity of the economy,” RBI deputy governor M Rajeshwar Rao said in a recent speech. “This is by no means a small step. Over time, the SGBs would provide a pricing reference for the private sector entities in India for their INR-denominated borrowing for ESG-linked debt. Thus, the issuance of SGBs would help in creating an ecosystem which fosters a greater flow of capital into green projects and entities undertaking such projects.”
The RBI has also included small renewable projects as part of its priority sector lending programme to improve financing of sustainable projects.
The union government has plans to sell nearly ₹25,000 crore of green bonds, including long-term debt, in the next fiscal year.