In August 2018, the south Indian state of Kerala experienced its worst floods in nearly a century. In April 2019, Odisha witnessed India’s strongest summertime cyclone in over 40 years. In California, wildfires caused the world’s first climate-change bankruptcy, with the collapse of Pacific Gas & Electric Company. The inability to curb the rise in temperatures below 2°C is estimated to cause economic losses of USD 69 trillion globally. It is no wonder then, that a recent World Economic Forum survey of global business leaders enlisted extreme weather and climate change as two of the biggest global risks to economies in 2019.
Climate change has emergedas the greatest challenge of our times, and calls for governments, corporates and communities to radically redefine the paradigms of the 21st century economy.The government of India has responded to these challenges by undertaking ambitious climate commitments to reduce its emission intensity, and decrease dependence on fossil fuels by 2030. To achieve these commitments, the government has devised the National Action Plan on Climate Change, spearheaded the International Solar Alliance (ISA), andundertook key initiatives such as the FAME Scheme for e-mobility and UJALA scheme for energy-efficiency.
On the World Environment Day 2018, aligning itself with the UN’s Beat Plastic Pollution campaign, the government of India also committed to eliminate all single-use plastic by 2022.The implementation of Plastic Waste Management rules, 2018, facilitated this transition by includingplastic manufacturers under the Extended Producer Responsibility (EPR)framework, resulting in increasedaccountability. While the renewed mandate will reinvigorate thegovernment’s vision of building a New India by 2022,objective policies enabling private sector participation will further accelerate India’s transition to a low-carboneconomy.
As the government lays out the policy roadmap, the role of financial institutions would be critical in mobilizing the USD 2.5 trillion required to meet India’s 2030 climate targets. For the past decade, the face of green finance has predominantly been the large-scale Renewable Energy (RE) projects, leading to a cumulative achievement of 80.28 GW of renewable capacity this April. Next big potential for investment lies in small-scale and distributed projects that are closer to the rural communities. Assets such as off-grid and rooftop solar often do not get access to mainstream finance, owing to weak or limited credit history. Structured mechanisms such as aggregation and securitization, backed by credit enhancementcan be leveraged to access finance from capital markets.
Mechanisms like green bonds further help drive long-term investments from domestic and international markets towards green infrastructure projects. This hasbeen evidenced by the Indian Railways Finance Corporation raising USD 500 million on the London Stock Exchange in December 2017, for financing a series of low carbon improvements to rolling stock and infrastructure.Leveraging such innovative structures would contribute to India’s climate action commitments of175 GW of renewable energy capacity by 2022, out of which the target for rooftop solar is 40 GW.
It is seen that green bonds have not only proven lucrative to investors, but have also helped create substantial positive environmental impact. An increasing number of investors today are demanding Environment, Social and Governance (ESG) data, driving financial institutions to not only embed sustainability into business strategies, but also further develop innovative green products.
Innovative blended finance models providefinancial institutions access to other untapped avenues for augmenting and mobilizing finance towards small-scale distributed projects. Such instruments would prove effective in bringing down the investment risks and crowd in private capital to sectors such as water, waste management and climate-smart agriculture.
The 2013 Companies Act has helped Corporate Social Responsibility (CSR)emerge as anotherstrategic tool for the private sector to directthe requisite funds towards Sustainable Development Goals. Leveraging CSR grants to enhance energy efficiency and promotingrenewable energy in Micro, Small and Medium Enterprises (MSMEs), YES BANK developed a first-of-its-kind CSR initiative ‘Say YES to Sustainable MSMEs in India’. Since its inception in 2015, the program has helped promote environmental sustainability & Occupational Health and Safety in about 50,000 MSMEs, impacting around 90,000 workers, and is estimated to mitigate 13,500 tCO2eemissionsannually.
Climate change is drastically altering the world and disrupting the business-as-usual approach. As the world seeks sustainable solutions to the climate crisis, customized policy setting, active engagement of both public and private entities, innovative financing mechanisms and enhanced collaboration would be crucial in accelerating the low-carbon transformation to a New India.
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