As the world confronts the climate crisis, the issue of finance has become increasingly prominent. Over the last decade, thematic finance, or capital raised for specific goals, has grown significantly, with green finance emerging as a key component. Climate finance, a subset of green finance, focuses on mitigation and adaptation projects under the United Nations Framework Convention on Climate Change (UNFCCC), whereas green finance, a natural progression of socially responsible investing that began in the 1970s, supports environmentally beneficial initiatives and has a broader scope.
Globally, the financial flows for green investments have surged. According to the Climate Bonds Initiative, the issuance of Green, Social, Sustainability, and Sustainability-linked (GSS+) bonds surpassed USD 5.7 trillion by the end of 2024, with annual flows for the first time exceeding USD 1 trillion. Yet, this capital remains concentrated in developed markets. Cross-border flows to developing nations are limited, often influenced by macroeconomic risks and geopolitical priorities. A key milestone came at COP29 in Azerbaijan, where the global climate finance commitment (originally by 2020, but revised to 2025) was revised from the original USD 100 billion annual target to USD 300 billion by 2030. Even so, estimates from the London School of Economics suggest that the world will need between USD 6.3 and 6.7 trillion annually by 2030, with emerging markets and developing countries (excluding China) alone requiring around USD 3.1 to 3.5 trillion.
For developing countries, the challenge lies not only in the volume but also in the structure of finance. OECD data show that in 2022, of USD 92 billion in public funds committed to developing nations, 69 per cent came as loans, 28 per cent as grants, and just 2 per cent as equity. The current debt-heavy nature of these flows increases the costs of energy transition projects, such as renewable energy initiatives, requiring significant investments. Competing domestic demands in developing countries highlight the need for more financial support from developed nations, further complicating the transition.
Through the comprehension of the above data, the World Bank and other Multilateral Development Banks announced at COP29 a collective target to provide USD 120 billion annually in climate finance for low- and middle-income countries by 2030, including USD 42 billion for adaptation projects, complemented by an expected USD 65 billion from private-sector mobilisation.
Amid these global dynamics, India is demonstrating leadership both domestically and internationally. To meet its net-zero vision and climate resilience goals, India requires an estimated USD 10-20 trillion by 2070, primarily for decarbonising power, transport, and industry, with adaptation costs potentially reaching INR 57 trillion through 2030. In 2022 alone, India mobilised roughly USD 50 billion domestically for clean energy and efficiency projects. India first issued Sovereign Green Bonds in January 2023, raising INR 8,000 crore (roughly USD 1 billion) to finance projects like energy-efficient electric locomotives, showcasing the country’s commitment to sustainable financing.
In addition to capital mobilisation, India is building market infrastructure that supports a green transition. A draft climate taxonomy has been released to classify climate-aligned activities, expected to promote a domestic green investor base. A domestic carbon market, anticipated by 2026, will help outline sectoral decarbonisation pathways, while regulatory frameworks, including climate disclosures for banks and green bond guidelines from SEBI and the RBI, aim to strengthen investor confidence. Globally, India has leveraged its role in G77+, BRICS, and the G20 to advocate for equitable financial flows, pressing for reforms in multilateral development banks and international credit rating systems.
However, there are plenty of challenges in India’s transition trajectory. Some of the finance-related challenges include a relatively shallow bond market. These challenges, coupled with implementation issues such as the poor financial health of electricity distribution companies, could limit the adoption of new projects in the country. Additionally, constraints on fiscal space and the creditworthiness of subnational entities may lead to a focus on priorities other than climate change.
Addressing these issues requires a phased national and subnational net-zero strategy across all sectors, with sector-specific policy and financial support packages. Improving the business case for emerging technologies, particularly in industrial decarbonisation, would allow extensive participation of foreign climate finance. Recycling capital from greenfield projects to bond-financed mature projects can further strengthen domestic financial flows.
India is at a critical point in its climate transition. The country is making efforts to close the gap in green finance and support the Global South by promoting domestic financing, developing market infrastructure, and fostering equitable international financial flows. These measures are necessary to ensure that India’s net-zero transition is both achievable and sustainable.
The writer is the Executive Director of Climate and Sustainability Initiative (CSI)
