Unlocking India's Climate Finance Potential: Catalyzing Private and Global Investments

India's ambitious net-zero target of 2070 may seem like a distant goal, but the urgency to take immediate action cannot be overstated. The long-term horizon can lead to complacency, undermining the critical need for swift and decisive efforts to mitigate climate change impacts. To counter this, the government's role in crowding in private and global financing becomes paramount.

Bridging the Climate Finance Gap: A Multifaceted Approach

Reducing Risks and Lowering the Cost of Capital

Effective policy measures are needed to reduce legal and systemic risks, lower the cost of capital, and attract a broader pool of investment without imposing a direct burden on the public exchequer. The introduction of long-term, cohesive regulatory and tax policies is crucial in this regard. This framework would facilitate the flow of capital towards climate finance projects, mitigating risks and ensuring sustainable funding sources.

Establishing a Dedicated Climate Action Institution

The establishment of a specialized institution focused on achieving net-zero emissions and addressing climate change is imperative. Existing government bodies like NABARD and NIIF cater to specific sectors such as agriculture and infrastructure, but there is a glaring gap in the form of a dedicated agency with the authority and mandate to drive climate action across various sectors. The creation of the "India Climate Action Institution" would fill this void, ensuring coordinated efforts and addressing industry-specific challenges.

Developing Technical Assistance and Frameworks

The development of technical assistance, metrics, and frameworks, including a much-delayed formal Green Taxonomy, is another crucial step. These tools are essential for launching climate funding, climate insurance, and other specialized financial products, which can help quantify and manage risks more effectively. By developing these frameworks, India can offer more affordable premiums and reduce the overall cost of capital for climate finance projects. This topic should be added to the FSDC's agenda until India achieves net-zero.

Leveraging Blended Finance and Incentivizing CSR/Philanthropic Funds

The government must play a catalytic role by using its limited public capital to attract private investments strategically. Initiatives similar to the blended finance structures announced in the Union Budget 2022–23, aimed at financing startups in agriculture and rural enterprises, should be expanded to include climate finance. Additionally, enabling CSR and philanthropic funds through appropriate amendments to tax and CSR laws would provide an immediate boost to the blended finance ecosystem. By revising these regulations, the government can create incentives for corporations and philanthropic organizations to allocate a portion of their funds towards climate finance initiatives.These amendments would lower the barriers to participation, making it more attractive for these entities to invest in sustainable projects. This infusion of CSR and philanthropic capital would not only supplement public and private investments but also signal a strong commitment to climate action, thereby encouraging further contributions from other stakeholders.