Climate finance commitments are essential to enable developing countries to tap into their potential as clean energy superpowers. With the right actions, India can not only accelerate the transition to clean energy but also set a global benchmark for sustainable growth.
India’s original Nationally Determined Contributions (NDC) envisaged a requirement of $2.5 trillion in climate finance from 2015 to 2030, or about $170 billion annually. Current capital flows cover only 25% of this requirement.
As CoP-29 enters its final stages, India is stepping up its commitment to grant-based long-term climate finance under the New Joint Quantitative Goals (NCQG). India, on behalf of Like-minded Developing Countries (LMDC), reiterated its call for developed countries to commit to providing at least $1.3 trillion annually until 2030.
In this regard, India needs to adopt a two-pronged approach. It is about attracting international capital and preparing domestic financial markets to direct local capital towards climate-smart investments. The strategy supports India’s 2070 net-zero target and delivers significant economic and environmental benefits across sectors.
Central to this effort is India’s domestic financial sector, particularly banks, which are the largest source of non-government climate finance. Banks must embed climate change considerations into their core decision-making processes to play a transformative role in aligning financial practices with national climate goals.
Indian banks can take inspiration from global banks and take proactive steps through an integrated transition plan. Recent research highlights how global banks are implementing forward-looking strategies that can provide a strong foundation for Indian financial institutions.
Transition planning goes beyond complying with anticipated Reserve Bank of India directives on climate risks. This will enable banks to create a comprehensive framework to identify climate risks and opportunities, set actionable targets, measure progress and ensure accountability at all levels.
This dynamic process requires banks to effectively leverage climate data in strategy development, risk assessment, and lending decisions. While India-specific data is limited, global examples such as Barclays’ ‘Blue Track’ methodology provide actionable inputs for addressing climate risks.
By estimating emissions across sectors such as energy and aviation and integrating forward-looking indicators, banks can incorporate climate risk into broader risk management systems, reducing exposure to extreme climate change. mitigation while ensuring alignment with India’s climate goals.
The role of customized financial products in supporting customers’ transition to low-carbon operations is equally important. Banks around the world are increasingly offering innovative green financial products such as sustainability-linked loans, green bonds and transition bonds to promote sustainable practices.
Indian banks have started implementing these products, enabling the mobilization of private sector investment and expanding the market for climate-smart lending solutions.
To drive meaningful change, banks must prioritize ongoing climate change at all levels and start at the top. Board leadership is essential to ensure climate considerations are integrated into all functions, from risk management to credit to strategy.
For example, HSBC has incorporated climate risk into its risk appetite statement, which provides regular updates to board committees and the development of climate risk indicators to guide decision-making at business and trading levels. It is being said. Such a structured approach promotes resilience and strengthens financial practices.
Finally, capacity building across India’s financial sector is essential to advance climate-smart finance. Over the past year, civil society organizations and the Indian Banks Association have been providing basic climate finance training for bankers.
Scaling up these efforts alongside peer-to-peer knowledge sharing will give Indian bankers the tools they need to navigate the complex risks and opportunities of climate finance. This will enable the sector to proactively support India’s climate ambitions.
As CoP-29 draws to a close, India must continue to demonstrate leadership in two key areas. One is to advocate for increased international support as a spokesperson for developing countries, and the other is to mobilize domestic resources to promote climate change countermeasures.
Empowering India’s financial sector as a cornerstone of the country’s climate change strategy, especially amid global uncertainty, by embedding climate change considerations into financial practices through emissions targets, disclosure, risk management, and green investments. It can be positioned.
India’s leadership in championing fair finance and strengthening domestic institutions could set the stage for a resilient and sustainable future.
The authors are managing director and senior associate of RMI’s India program, respectively.