22 Dec 2023
Explainer: What Is Green Finance And Why It Matters
In the wake of escalating concerns surrounding environmentally detrimental practices, the spotlight is increasingly shifting towards green finance—a pivotal force driving positive change. Green finance encompasses loans and investments strategically designed to foster environmentally friendly initiatives, ranging from the acquisition of sustainable goods and services to the development of eco-conscious infrastructure In a nutshell, green […]

In the wake of escalating concerns surrounding environmentally detrimental practices, the spotlight is increasingly shifting towards green finance—a pivotal force driving positive change. Green finance encompasses loans and investments strategically designed to foster environmentally friendly initiatives, ranging from the acquisition of sustainable goods and services to the development of eco-conscious infrastructure

In a nutshell, green finance is an intentionally designed financial activity, be it a product or service, aimed at fostering a more favourable environmental impact. This financial approach involves loans or investments specifically geared towards supporting eco-friendly endeavours, whether it’s the acquisition of environmentally-conscious goods and services or the development of sustainable infrastructure. Essentially, green finance is about channeling financial resources into initiatives that contribute positively to the environment.

Stakeholders Of Green Finance

Green bonds serve as a key avenue within the sphere of green finance. Governments, companies, or organisations issue these bonds to secure funding for projects that promote environmental well-being, including ventures in renewable energy, energy efficiency, and sustainable land use. Investors engaging in green bonds not only stand to gain a financial return but also actively participate in supporting initiatives that yield positive environmental impacts.

Under the expansive umbrella of green finance, noteworthy projects include green finance projects aimed at harnessing renewable energy sources and improving energy efficiency to reduce environmental impact. Initiatives focused on mitigating and controlling pollution to safeguard the environment too is important. Green finance practices also prioritise recycling, reusing, and reducing waste to create a circular economy. Projects promoting responsible and sustainable utilisation of natural resources and land too are important for green finance.

The Environment Well-being Goal

Nationally Determined Contributions (NDCs), energy independence by 2047, and a commitment to achieve net zero emissions by 2070. To realise these goals, it’s estimated that India needs $2500 billion from 2015-2030. However, only around less than 25 percent of this target has been met. The urgency to mobilise finance exponentially to support this transition is clear and needs immediate attention. It’s crucial to balance this need with an awareness of potential unintended consequences that may arise from sudden financial market reforms.

As one of the world’s largest greenhouse gas emitters, India requires a substantial budget of over$10 trillion to achieve its net zero emissions target by 2070. Both the public and private sectors are actively engaged in various measures, leading to increased investment and financing opportunities. Notably, green finance plays a key role in this scenario—representing sustainable or responsible finance that effectively funds projects with environmental benefits. These projects focus on reducing greenhouse gas emissions, improving energy efficiency, and promoting the circular economy.

Also Read: Green Roofs In Concrete Jungle

Future Of Green Finance In India

To support sustainable development and meet the growing demand for eco-friendly initiatives, the Reserve Bank of India has issued guidelines for banks and non-bank financial companies (NBFCs) to accept “green deposits.” This ensures that funds are directed toward projects related to energy efficiency, clean transportation, climate adaptation, sustainable water and waste management, green buildings, and biodiversity conservation.

As the interest in green finance rises, India is expected to witness more creative financing solutions and investment opportunities in the green sector. In March, the Securities and Exchange Board of India (SEBI) introduced a category for Environmental, Social, and Governance (ESG) mutual funds. This allows asset management companies in India to launch multiple ESG funds, promoting increased transparency and boosting investor confidence as reporting on these parameters improves.

The Indian government has been actively addressing climate change through its National Action Plan, featuring eight missions to reduce emissions, enhance energy efficiency, increase forest cover, and develop sustainable habitats. This climate policy aligns with broader goals like ensuring energy access and water security.

This initiative is aimed at mobilising substantial resources dedicated to green infrastructure projects. The funds generated from these sovereign green bonds are expressly designated for deployment in public sector endeavors that actively contribute to the reduction of the carbon intensity of the economy. Strategic investments in sectors contributing to 41% of India’s greenhouse gas emissions hold paramount significance, especially considering projections indicating their potential escalation to two-thirds of emissions by 2050 amidst ongoing economic growth. 

Green Finance In Renewable Energy

Notably, the allocation of green bond proceeds to renewable energy plays a pivotal role in facilitating the adoption of well-established renewable technologies, with a primary focus on solar power, followed by wind and small hydro projects. Additionally, these funds contribute to vital research and development initiatives, including the exploration of emerging technologies such as tidal energy. This allocation of resources through green finance assumes critical importance in supporting India’s transition towards a more sustainable energy landscape. These initiatives underscore the nation’s dedication to leveraging financial instruments for the explicit purpose of fostering sustainable and environmentally responsible development, aligning with the broader global commitment to combat climate change.

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