Green Finance: Intent To Impact
The green side may be greener, but only if we ensure it is genuinely green—and that will require both market discipline and the guiding hand of regulation
In the increasingly complex world of finance, the term "green" has captured the imaginations of investors, companies, regulators, and the public alike. However, as the sector navigate this, a critical question arises: How green is truly green?
For Indian finance professionals, the challenge lies in discerning genuine sustainability from "greenwashing" and confronting the implications of "green-shaming" and many other "green-ism."
At the heart of any credible green finance strategy lies the need for a clear and universally accepted taxonomy. What qualifies as green? This question, seemingly straightforward, is layered with complexity, as different countries and regulators use different definitions as they use or evolve their green taxonomy. However, a one-size-fits-all approach cannot capture the nuances of emerging markets like India.
The taxonomy to be rolled out by the Government of India is expected to account for social equity, developmental priorities, and environmental challenges unique to the region. For Indian finance professionals, the task is to develop operational-processes that are based on such a taxonomy, and that balances global standards with local realities. The push for solar energy, for example, is undeniably green. Yet, the social cost of displacing communities to build solar farms must be weighed. Similarly, investments in electric vehicles (EVs) are championed as green, but the sustainability of EV batteries—dependent on rare earth minerals—poses ethical and environmental dilemmas.
Greenwashing, the practice of marketing investments as environmentally friendly without substantial backing, is a pervasive threat to the credibility of sustainable finance. For Indian financial institutions, avoiding this trap requires rigorous due diligence and transparency. Companies must be held accountable not just for their environmental claims but also for the lifecycle impact of their operations. For instance, a company that boasts of reducing its carbon footprint while outsourcing carbon-intensive processes abroad is merely shifting the burden, not alleviating it. This is where regulations will be crucial.
The role of regulators cannot be overstated. SEBI's guidelines on ESG (Environmental, Social, and Governance) disclosures are a step in the right direction, but more stringent measures are expected to emerge as market participants mature their business models. Financial institutions must develop robust frameworks to evaluate green claims, ensuring that they are not merely cosmetic. Regulations will serve as the guiding post for the genuineness of such financing, establishing clear standards and holding entities accountable to them. The onus is again on the finance professionals to separate genuine sustainability from the noise of greenwashing, with regulatory oversight as their ally.
While the fight against greenwashing is necessary, it has given rise to another challenge: green-shaming. Companies and individuals are often criticised for not being "green enough," leading to a culture of green-ism where only the most environmentally pristine practices are deemed acceptable. This creates a paradox: businesses and investors are pushed towards unsustainable extremes to avoid criticism, often at the expense of practical, incremental improvements. Indian finance professionals must advocate for a balanced approach.
We forget that Sustainability is a journey, not a destination. While we ideally want to showcase quick results around such initiatives, we need to balance it with execution and sustainability. Incremental progress, when multiplied across industries and sectors, can have a profound impact. The focus should be on continuous improvement rather than achieving an idealised version of green. This pragmatic approach will not only foster innovation but also ensure that the transition to a green economy is inclusive and just.
Despite the challenges of greenwashing, green-shaming, and the complexities of defining true sustainability, the finance world has no choice but to move towards green. The global shift towards sustainability is not a passing trend; it is a structural change that will redefine industries. Climate change, resource scarcity, and regulatory pressures will make green finance not just a moral imperative but a strategic necessity. For Indian finance professionals, the question is not whether to embrace green finance but how to do so effectively. The economic opportunities are significant. The International Finance Corporation (IFC) estimates that by 2030, climate-related investments in emerging markets could reach $23 trillion. For India, a country with vast renewable energy potential and a growing green bond market, the opportunities are immense.
However, capturing these opportunities requires a mindset shift. Green finance must be seen not as a niche but as an integral part of the financial ecosystem. This involves embedding sustainability into the core of financial decision-making. From credit risk assessment to portfolio management, every aspect of finance must incorporate sustainability considerations, with regulatory frameworks ensuring that these considerations are genuinely green.
The choices made today will shape the future of our economy and our planet. The green side may be greener, but only if we ensure it is genuinely green—and that will require both market discipline and the guiding hand of regulation.
(Views expressed here are personal views of the authors)
