OPINION: India will likely witness a boom in the green economy and green finance! Are we prepared?
Jun 4, 2022, 16:24 IST
Today, India’s dedicated “Green Finance” sector is still at a nascent stage. An ongoing study by the Climate Policy Initiative (CPI) finds that India could only mobilise around $18 billion in climate investments in 2018 compared to the annual requirement of $160 billion. Therefore, India needs to mobilise at least nine times its current rate to achieve Net Zero by 2070.
Adding to this strive, the government must develop a comprehensive legislative and regulatory framework, as well as substantial financial backing from domestic and foreign sources.
The CEEW-CEF estimated India will need to invest $10.103 trillion by 2070 to be carbon-neutral. About $8.412 trillion will be required to transition India's coal-reliant power sector towards renewable energy sources. Another $1.494 trillion will be needed to develop carbon capture and storage and green hydrogen technology.
The raised ambitions and new goals for tackling climate change could all be in vain if we fail to provide adequate climate finance support at the right time. India will also need to invest heavily in climate-responsible investments in R&D and develop indigenous futuristic technology so that it can align itself to Atma-Nirbhar Bharat and break away from the ‘technological transfer’ paradigm from developed countries, which may also take time and may involve aspects of geopolitics. Overall, India must recognise that it needs a long-term ‘climate investment framework’ that combines different sources of finance in order to fulfil all its ambitions on time.
To materialise green bonds is one of the prime ways to achieve this. Fortunately, the growth of the issuance of green bonds has also increased in India. As per EY’s analysis, the growth in the Green Bond market showed a sudden boom from the middle of the financial year 2021. Several clients have started with their green issuance process in India. Several International clients are also invested in Green Bonds issued by India.
Green bonds issued by emerging markets such as India appeal to foreign investors due to relatively attractive valuation and decent economic growth prospects.
The concept of the green economy has gained momentum in recent times. To a large extent, this is because it actually tries to act as a response to several crises mankind is facing, including climate change and food and economic crises. It offers an alternative paradigm that promises growth while protecting the earth’s ecosystems and, in turn, contributing to poverty alleviation.
In this sense, the transition to a green economy will entail moving away from the system that allowed, and at times generated, these crises to a system that proactively addresses and prevents them. Therefore, a green economy can be the only way forward from this decade onwards.
India’s issuance of green bonds remained significantly low till 2020 since the inception of the first green bonds by Yes Bank in 2015. India saw a boost in Green Bond in 2021. As per information from U.K.-based green bond tracking agency Climate Bonds Initiative, India issued $6.11 billion in green bonds during the first 11 months of 2021. In this financial year, India is planning to issue at least Rs 24,000 crore ($3.3 billion) in sovereign green bonds as the country marks a shift towards a low-carbon economy.
Therefore, Green finance options are quickly becoming the preferred investment mechanism for the private and governmental sectors to fund projects that benefit the environment, such as sustainable energy, low-carbon transportation, and energy-efficient buildings.
For foreign investors, markets such as India appeal due to their relatively attractive valuation and decent economic growth prospects. More issuers from India could infiltrate the offshore market where there is a deeper and wider pool of climate-conscious investors. This model will only be fruitful when there is a level of assurance. Consulting firms like EY India have started to conduct such bond assurances in India using their extensive global experience.
Investors, regulators and, more broadly, society, increasingly demand greater transparency around the impact created by the organisations through green financing to assess their true long-term value. Many banks like Bank of USA and Commonwealth Bank of Australia are disclosing their green financing portfolio. In India, Axis Bank published a Green Bond impact report till 2021.
The future appears green for India, and hopefully, we all can collectively finance this journey towards a better tomorrow.
Shailesh Tyagi is a Partner, Climate Change and Sustainability Services, at EY India.
Disclaimer: The opinions expressed are of the author/interviewee and do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.
This column is part of June 2022’s month-long awareness campaign on the theme “Only One Earth: Sustaining People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.
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The silver lining is that India is undergoing a paradigm shift where Green finance is a critical enabler in achieving the country’s ambitious decarbonisation goals. Green finance, while still nascent in India, has the potential to become a major driver of India's Mission 2070. Adding to this strive, the government must develop a comprehensive legislative and regulatory framework, as well as substantial financial backing from domestic and foreign sources.
Green bonds to pursue sustainable financing
The CEEW-CEF estimated India will need to invest $10.103 trillion by 2070 to be carbon-neutral. About $8.412 trillion will be required to transition India's coal-reliant power sector towards renewable energy sources. Another $1.494 trillion will be needed to develop carbon capture and storage and green hydrogen technology. The raised ambitions and new goals for tackling climate change could all be in vain if we fail to provide adequate climate finance support at the right time. India will also need to invest heavily in climate-responsible investments in R&D and develop indigenous futuristic technology so that it can align itself to Atma-Nirbhar Bharat and break away from the ‘technological transfer’ paradigm from developed countries, which may also take time and may involve aspects of geopolitics. Overall, India must recognise that it needs a long-term ‘climate investment framework’ that combines different sources of finance in order to fulfil all its ambitions on time.
To materialise green bonds is one of the prime ways to achieve this. Fortunately, the growth of the issuance of green bonds has also increased in India. As per EY’s analysis, the growth in the Green Bond market showed a sudden boom from the middle of the financial year 2021. Several clients have started with their green issuance process in India. Several International clients are also invested in Green Bonds issued by India.
Green bonds issued by emerging markets such as India appeal to foreign investors due to relatively attractive valuation and decent economic growth prospects.
Can Green Economy address the challenges of the 21st century?
The concept of the green economy has gained momentum in recent times. To a large extent, this is because it actually tries to act as a response to several crises mankind is facing, including climate change and food and economic crises. It offers an alternative paradigm that promises growth while protecting the earth’s ecosystems and, in turn, contributing to poverty alleviation. In this sense, the transition to a green economy will entail moving away from the system that allowed, and at times generated, these crises to a system that proactively addresses and prevents them. Therefore, a green economy can be the only way forward from this decade onwards.
What’s the way forward?
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Therefore, Green finance options are quickly becoming the preferred investment mechanism for the private and governmental sectors to fund projects that benefit the environment, such as sustainable energy, low-carbon transportation, and energy-efficient buildings.
For foreign investors, markets such as India appeal due to their relatively attractive valuation and decent economic growth prospects. More issuers from India could infiltrate the offshore market where there is a deeper and wider pool of climate-conscious investors. This model will only be fruitful when there is a level of assurance. Consulting firms like EY India have started to conduct such bond assurances in India using their extensive global experience.
Investors, regulators and, more broadly, society, increasingly demand greater transparency around the impact created by the organisations through green financing to assess their true long-term value. Many banks like Bank of USA and Commonwealth Bank of Australia are disclosing their green financing portfolio. In India, Axis Bank published a Green Bond impact report till 2021.
The future appears green for India, and hopefully, we all can collectively finance this journey towards a better tomorrow.
Shailesh Tyagi is a Partner, Climate Change and Sustainability Services, at EY India.
Disclaimer: The opinions expressed are of the author/interviewee and do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.
This column is part of June 2022’s month-long awareness campaign on the theme “Only One Earth: Sustaining People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.