India Must ‘Blend’ It Right For Climate Action
Various Indian regulatory organisations are currently at different stages of their policy evolution regarding climate change and its financing needs
From a citizen's perspective, the urgency of crowding in climate finance cannot be overstated. As we witness increasingly severe climate impacts like extreme weather events, rising temperatures, and ecological disruptions, the need for immediate action is clear. Without substantial investments in climate-resilient infrastructure and technologies, our communities face heightened risks to livelihoods, health, and overall well-being. Crowding in climate finance is essential to safeguarding our future, ensuring that our cities are resilient to climate shocks, our agriculture is sustainable, and vulnerable populations are protected from climate-related disasters. The time to act is now, leveraging all available resources to build a sustainable and secure future for generations to come.
Questions abound regarding the availability and mobilisation of climate finance. Are sufficient funds earmarked for climate resilience and adaptation initiatives? What measures are in place to attract private investors hesitant due to perceived risks? How can regulatory frameworks be adapted to facilitate the flow of capital into sustainable projects? What role can philanthropic organisations play in supplementing public and private investments? Will international partnerships and collaborations help bridge the funding gap? Without clear answers and concerted efforts to overcome financial barriers, the path towards a resilient, low-carbon future remains uncertain.
Various Indian regulatory organisations are currently at different stages of their policy evolution regarding climate change and its financing needs. While some entities have started to integrate climate considerations into their frameworks, others are still in the early stages of recognising the urgency and scale of climate-related challenges. This disparity in policy thinking and organisational readiness impacts the establishment of a cohesive and agile approach to climate financing across India. Without a unified policy stance and synchronised efforts among regulatory bodies, there remains a risk of fragmented approaches and inconsistent support for climate-resilient investments.
India’s policy stance on climate financing, particularly blended finance, is marked by hesitation and regulatory rigidity. Despite the clear potential of leveraging blended finance to bridge the substantial funding gap (of around USD 10-12 trillion) needed to achieve net-zero emissions by 2070, the Indian government has been slow to provide a supportive regulatory and tax framework for enabling blended finance. Current regulations are not conducive to the blending of philanthropic and concessional capital that is necessary to attract private and global capital pools, with regulatory and tax barriers creating significant impediments. The reluctance to fully embrace blended finance structures and provide them the express legitimacy or regulatory blessing needed to scale up climate financing reflects a conservative mindset that fails to recognise the urgency of climate action.
Blended finance is an innovative financial strategy that combines public, private, and philanthropic funds to drive investments in projects with significant social or environmental benefits, such as climate resilience initiatives. The core idea is to use public or philanthropic capital to mitigate the risks associated with the projects, thereby making them commercially feasible to attract private capital leading to a multiplier effect. This risk-sharing approach can involve mechanisms like guarantees, first-loss capital, or concessional financing. By reducing the financial risks and potentially enhancing returns, blended finance mobilises larger volumes of private capital that would otherwise be reluctant to invest to address funding gaps, promote sustainable development, and achieve broader societal goals.
Regulatory and tax support by the Government could allow innovative financial instruments such as impact bonds, green bonds, impact funds, social stock exchange listings and sustainability-linked loans to further broadens the pool of available capital. Additionally, by aligning various stakeholders, including government bodies, private investors, and philanthropic organisations, projects will benefit from a wide range of expertise and resources.
To facilitate this, the government must play a catalytic role by creating a supportive regulatory and tax framework. Policy reforms, such as tax clarifications or incentives for green investments and conducive regulatory framework can significantly boost investor confidence and participation. Moreover, the establishment of a specialised institution dedicated to achieving net-zero emissions and addressing climate change is imperative. This institution would coordinate efforts across sectors and various arms of the government, address industry-specific challenges and drive climate action.
Dangers Of Not Having A Climate Taxonomy
India's ambitious goal of achieving net-zero emissions by 2070 is jeopardised by the absence of a formal climate taxonomy, leaving the nation vulnerable to greenwashing and undermining the integrity of its climate finance efforts. The absence of a comprehensive climate taxonomy in India poses significant risks to financial resilience and the credibility of climate finance efforts.
A climate taxonomy provides a clear classification system for environmentally sustainable economic activities, which is essential for ensuring that investments genuinely contribute to climate goals. Without such a framework, there is a heightened risk of greenwashing, where companies and financial products falsely claim to be environmentally friendly. This can damage the reputation of legitimate green investments and undermine public trust.
The lack of a standardised taxonomy also impedes the development of reliable metrics and benchmarks, making it difficult to assess the impact and effectiveness of climate finance. Consequently, financial institutions may struggle to assess climate-related risks accurately, leading to increased cost of capital. Establishing a robust climate taxonomy is crucial for fostering transparency, accountability, and lowering the cost of capital. Furthermore, developing technical assistance, metrics, and frameworks is crucial as they enable the launch of climate funding and insurance products that can mitigate climate risks more effectively.
The goal of achieving net-zero emissions by 2070 may appear distant, potentially reducing the sense of urgency for immediate action. With appropriate policy norms, India can indeed attract the necessary capital to achieve its ambitious climate goals, ensuring sustainable growth and resilience against the escalating impacts of climate change.
