Mobilizing Green Finance while Managing Climate Finance Risks in India

This report examines the challenges and opportunities for mobilizing green finance in India while managing climate-related financial risks. It highlights a conflict where current risk perceptions and conservative regulatory frameworks (like Basel III) hinder the flow of capital to green projects. The authors propose a comprehensive strategy involving carbon pricing, green sovereign bonds, a nationalized green bank, and updated regulatory prescriptions for risk weights and credit ratings to align financial stability with India's 2070 carbon neutrality goal.

• India requires approximately INR 162.5 trillion (USD 2.5 trillion) between 2015 and 2030, or roughly INR 11 trillion (USD 170 billion) annually, to meet its climate action goals. Current annual investment is significantly lower, at around USD 18 billion.
• The Basel III framework creates barriers to climate investment by discouraging long-term funding and illiquid investments through risk weights based on historical data. Additionally, the supervisory review process often excludes climate change as a material risk in stress tests, and there is no mandatory public disclosure of climate risk exposure.
• Current credit and ESG rating systems in India are insufficient for mobilizing green finance. Credit ratings fail to capture long-term physical and transition risks, while ESG ratings suffer from integrity issues and a lack of transparent data, often acting more as compliance evaluations than carbon emission measurements.
• Insurance and pension funds in India, including the EPF, NPS, and PPF, are underutilized for green finance despite their long-term nature. Current regulations mandate investments in highly graded securities and lack requirements for insurance funds to conduct Excess & Surplus (E&S) risk assessments regarding long-term climate risk.
• To increase green finance, the report recommends several policy interventions, including the implementation of carbon pricing (carbon taxes or emissions trading), the issuance of green government securities (G-secs), and the establishment of a nationalized green bank.
• The report suggests regulatory changes to the banking sector, such as expanding Priority Sector Lending (PSL) to include more green activities with mandated minimum investments, introducing interest subventions for green lending, and adjusting risk weights to penalize carbon-intensive projects or reward green ones.
• There is a need to diversify the Indian bond market beyond green bonds to include social bonds, sustainability bonds, and sustainability-linked bonds, as these instruments have been successfully used by entities like the World Bank, IFC, and countries such as the UK and Japan.

APA

Khanna, N., & Purkayastha, D. (2022). Mobilizing Green Finance while Managing Climate Finance Risks in India. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2022/04/Mobilizing-Green-Finance-while-Managing-Climate-Finance-Risks-in-India.pdf

Chicago

Khanna, Neha, and Dhruba Purkayastha. Mobilizing Green Finance while Managing Climate Finance Risks in India. Climate Policy Initiative, 2022. https://www.climatepolicyinitiative.org/wp-content/uploads/2022/04/Mobilizing-Green-Finance-while-Managing-Climate-Finance-Risks-in-India.pdf.

Wikipedia

{{cite report |last1=Khanna |first1=Neha |last2=Purkayastha |first2=Dhruba |title=Mobilizing Green Finance while Managing Climate Finance Risks in India |publisher=Climate Policy Initiative |date=March 2022 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2022/04/Mobilizing-Green-Finance-while-Managing-Climate-Finance-Risks-in-India.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{khanna2022mobilizing, author = {Khanna, Neha and Purkayastha, Dhruba}, title = {{Mobilizing Green Finance while Managing Climate Finance Risks in India}}, institution = {Climate Policy Initiative}, year = {2022}, month = mar, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2022/04/Mobilizing-Green-Finance-while-Managing-Climate-Finance-Risks-in-India.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }