We must catalyse innovation towards sustainable finance to enhance India’s climate resilience

Tapping the vibrant innovation ecosystem and enabling smooth green finance can drive the adoption of sustainable projects Climate change remains one of the key global concerns of the current century and the issue is more precarious for India. As a developing economy in the Global South with a significant population with socio-economic vulnerabilities, India confronts heightened exposure to climate change impacts. Recognising the escalating environmental apprehensions, it becomes imperative for the nation to intensify its endeavours towards fostering sustainable growth. The interim Union Budget 2024-25 speech reaffirmed India’s commitment for Net Zero by 2070 by highlighting measures in four key thematic areas, namely: Green energy, electric vehicles, bio-manufacturing and bio-foundry and blue economy. To attain low carbon-green growth, sustainable finance will play a pivotal role in linking economic growth, environmental improvement and the financial industry with each other. India, as a participant in the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, presented its initial Nationally Determined Contributions in 2015. This commitment included two measurable objectives: Remarkably, both of these objectives were achieved well ahead of schedule. As of October 31, 2023, the cumulative electric power installed capacity from non-fossil fuel-based energy resources stands at 186.46 megawatts, constituting 43.81 per cent of the total cumulative electric power installed capacity. According to India’s third national communication submitted to the UNFCCC in December 2023, the emission intensity of its GDP has already been reduced by 33 per cent between 2005 and 2019. The need for sustainable infrastructure, renewable energy and effective transportation systems is consistently increasing. Projections from the Reserve Bank of India indicate that, by 2030, India is anticipated to invest Rs 85.6 trillion ($1.05 trillion) to align industries with climate change regulations. Businesses should conduct a thorough evaluation of their strategies for mitigating climate change to optimise their impact on controlling and minimising the effects of climate change. The Green Credit Initiative, introduced during the 28th Conference of Parties to the UNFCCC, is part of the government’s Lifestyle for Environment (LiFE) movement and can incentivise individuals, organisations and industries to undertake positive environmental projects. However, various questions pertaining to the viability of green credit as an alternative funding model for innovative ideas remain to be answered. New strategies need to be devised to mitigate greenwashing. As per the Union ministry of new and renewable energy’s report,  Financial Constraints  in Renewable Energy Sector , against the required annual investment of Rs 1.5-2 lakh crore, the actual annual investment in the last few years was Rs 75,000 crore.  According to the latest report by non-profit Indian Venture and Alternate Capital Association on private equity, contemporary venture capitalists have started embarking on sustainable financing-based projects. Environmental, social and governance (ESG) investments have jumped from 5 per cent  to 13 per cent of total private equity-venture capital (PE-VC) investments. Despite global macro-economic uncertainties and political shifts, ESG-themed PE-VC deals led by electric mobility, green finance and clean technology sectors grew by 2.4 times. ESG startups are playing a critical role in propagating sustainable practices through their innovative and adaptive approaches. A good example is AgriVijay, an emerging startup that endeavours to streamline the accessibility of green financing and renewable energy-based products through 80+ renewable energy stores across Tier 2 and 3 cities. Such endeavours have created a profound impact in terms of greenhouse gas emission abatement and augmenting farmers’ income. More startups need to step up and propose novel approaches for incorporating green credits into India’s booming financial digital ecosystem. Supporting innovation can be instrumental in directing long-term economic growth on a sustainable path. But without adequate government support, catalysing innovation within the green finance sector proves to be exceedingly challenging. To this effect, Atal Innovation Mission, under the central public policy think tank NITI Aayog, aims to encourage the spirit of innovation in green and sustainable finance through a network of state-of-the-art Atal Incubation Centres. Additionally, initiatives such as the Atal New India Challenges, in partnership with different central ministries, aim to facilitate financial assistance and mentorship for companies involved in sustainable projects. Tapping the vibrant innovation ecosystem and enabling smooth green finance can drive the adoption of sustainable projects. While startups and micro, small and medium enterprises undoubtedly require governmental support to align with their ESG goals and integrate it into their working philosophies, it is equally essential for them to secure a broader spectrum of investments and commitments from PE-VC firms to build a climate-resilient future. It’s high time that such PE-VC entities provide unwavering financial backing to these companies and empower them to generate substantial momentum and fortify their operations to support LiFE movement. One of the challenges in financing sustainable projects and green credit is the lack of rigorous verification and monitoring practices. Stringent monitoring and evaluation processes are essential to ensuring the credibility and authenticity of green initiatives. Establishing an independent regulatory body with robust oversight capabilities is crucial to mitigating greenwashing. Recity, an emerging circular economy-based startup supported by Atal Innovation Mission, has come up with end-to-end traceability of waste materials to govern the flow of waste from a citizen segregating at source to a waste worker and urban local bodies enabling segregated collection. Such models can be customised and deployed at scale to combat misleading claims about sustainable practices. Stronger regulations are needed to guarantee ongoing monitoring and validation of claims, including the creation of a sustainable funding model to ensure the longevity and impact of the green credit programme. This could involve a mix of public and private funding, with a dedicated fund or mechanism for green projects. Expanding the scope of corporate social responsibility (CSR) by incorporating a voluntary green credit scheme emerges as a strategic initiative. To further stimulate green credit and enhance sustainability, establishing government support for emerging startups engaged in green projects and environmentally friendly products with promising and sustainable project cash flows is imperative. Integrating green credit investment into Schedule VII of CSR provisions or establishing a legal mandate akin to CSR for green credit can accelerate the adoption of sustainable business practices. Stakeholder demands and sustainability disclosures are changing to accommodate the increasing demand for transparency, particularly by emphasising various sustainability themes. The emergence of environmentally friendly, socially responsible and sustainability-focused financial instruments, along with heightened calls for climate risk mitigation, voluntary carbon offsetting and the development of sustainable urban environments, all highlight the industry’s dedication to combating climate change. Successful programmes and financial instruments could be replicated and scaled up, while new approaches and financial instruments, including a broader range of risk mitigation instruments, could be piloted and evaluated to create a sustainable future. Nandan Kumar and Ashwinkumar Wasnik are part of Atal Innovation Mission team at NITI Aayog Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth We are a voice to you; you have been a support to us. Together we build journalism that is independent, credible and fearless. You can further help us by making a donation. 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