Mobilizing Green Finance while Managing Climate Finance Risks in India

The document identifies a dilemma in India's financial system where increasing green finance is perceived to raise credit risk, while strict risk management may constrain green capital flows. It argues that current frameworks, including Basel III, do not adequately factor in climate-related financial risks. To bridge the investment gap—estimated at USD 170 billion per annum—the report recommends a three-pillar approach: policy interventions (such as carbon pricing and green government securities), regulatory prescriptions (including modified risk weights and carbon ratings), and market mechanisms (such as standardized disclosure frameworks and capacity building).

• India faces a significant climate investment gap, requiring approximately USD 170 billion per annum from 2015 to 2030 to meet its goals, while current annual investment is only around USD 18 billion.
• There is a perceived conflict between expanding green finance and managing financial risk; increasing green loans may be seen as increasing overall credit risk because green assets are often perceived to have lower credit quality.
• The Basel III framework creates barriers to climate investment by discouraging long-term funding and relying on historical data for risk weights, which often results in lower ratings for climate lending.
• Current credit and ESG rating systems in India are insufficient for mobilizing green finance due to integrity issues, a lack of data transparency, and a failure to capture long-term physical and transition risks.
• Insurance and pension funds in India are underutilized sources of green capital because they lack regulatory requirements for climate risk assessments and are constrained by rigid investment criteria.
• The report proposes specific policy tools to raise revenue and attract capital, including the implementation of carbon pricing, the issuance of green government securities, and the establishment of a nationalized green bank.
• Regulatory recommendations to increase green flows include expanding Priority Sector Lending (PSL) to cover more green activities, introducing interest subventions for green lending, and modifying risk weights to penalize carbon-intensive projects.

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} }