Climate Finance Inadequate to Curb India's Emissions: ICRA

Chennai: Climate finance avenues are not enough to combat the potential rise in India’s carbon emissions amid economic growth, finds ICRA.

There are multiple avenues for climate finance, including funds established at the Conference of Parties (COP), global climate funds, green bonds, green deposits and other debt and equity instruments.

In 2022, developed nations met the target of channelising $100 billion a year to developing nations for the first time. Concessional loans and grants are common ways of extending funds and India is one of the recipient countries of these funds.

The New Collective Quantified Goal (NCQG) introduced in 2021, is a new annual financial target that developed countries must meet from 2025 to provide climate finance to developing countries.

Green Climate Fund (GCF) is the world’s largest climate fund, mandated to support developing countries raise and realise their Nationally Determined Contribution (NDC) ambitions. Projects funded by the GCF will offset more than 600 million tonnes of carbon emissions, which is approximately 25 per cent of India’s carbon emissions in 2022. However, when major projects get completed after 2030, carbon emissions will have increased.

The cumulative issuances of Indian Sovereign Green Bonds from FY23 stand at Rs. 0.36 trillion, which is less than 1 per cent of the global issuances. Some of India’s municipal corporations, including Indore, Ghaziabad and Ahmedabad also have issued Green Bonds.

Corporate Green Bonds was introduced in 2015. Five Indian corporates - Adani Group, Indian Railway Finance Corp, JSW Hydro Energy and ReNew Group hold 80 per cent of the Green Bond issuances in India.

Few banks in India have launched green fixed deposits. However, the rates offered on green deposits are similar to or marginally better than the normal FD rates, providing minimal incentives for investors.

Non-banking Financial Companies (NBFC) serving the infrastructure space have more exposure to climate finance, especially in the Renewable Energy (RE) space. Share of RE in their total funding has increased by 300 bps over the past two years.

FDI inflow into RE has been on an increasing trend since FY2021 and increased by a sharp 51 per cent in FY2024. T

Measures towards mandatory climate funding by financial institutions may help achieve climate goals faster, finds ICRA.