Bringing In The Climate Money

Context: There is a need to revamp climate mitigation financing tools in order to mobilise resources to meet the huge investment gap.

Issue of inadequate investments in climate change mitigation

• For India, cumulative costs of meeting current NDCs could be around Rs.515.2 lakh crore
• The gap in financing NDCs could be in the range of Rs.83.2 lakh crore by 2030.
• Currently, more than 70% of available green flows in India come from domestic sources.
• India needs finance not only for enhancing energy efficiency in production and consumption but also to lower the carbon intensity of products to be ahead of the sustainability curve.
• This requires huge investments in new technologies such as higher electrification across sectors, innovation in lower zero-carbon fuels, and application of carbon capture and use technologies.

Barriers before climate mitigation financing in India

• High cost of capital: Significantly higher than in the international markets, making green investments costlier.
• Reluctant industry: The industry is reluctant to adopt green technologies because of higher initial capital costs and uncertainties associated with its impact on operational and competitive efficiency.
• Skewed focus: The domestic finance for mitigation is primarily focused on energy efficiency and renewable where the returns are predictable, leaving the needs of other sectors unattended.
• Paris Agreement obligations being overlooked: The agreement obliges industrialised countries to mobilise $100 billion a year and provide it through bilateral and multilateral channels to developing economies to support their actions. It is yet to be materialised.

Way forward

• Clearly defining sustainable investments: Precise and consistent classification of ‘green’ and ‘sustainable’ activities could introduce predictability and instil investor confidence.
• Enhance data disclosure by industry and businesses in terms of green operations: A standardised disclosure framework helps in raising finance more easily from domestic or international sources.
• Sebi is currently working on a revised sustainability reporting framework for businesses. 
• Internationally, the Task Force on Climate Disclosures (TFCD) set up by the Financial Stability Board (FSB) has already started work on this.
• Create a set of financial instruments to ease access to the capital market: This includes mechanisms for reducing currency risks of borrowing abroad, credit enhancement, viability gap funding and partial credit guarantees to green ventures.