As climate finance momentum slows globally, India stands out as a beacon of progress in sustainable energy investment. With ambitious targets of 500 GW of non-fossil fuel capacity by 2030, a 45% reduction in emissions intensity, and net zero by 2070, India is rewriting the global narrative on green energy. However, achieving these ambitious goals requires innovative financing models, robust public-private collaboration, and a supportive regulatory framework.

The recent high-level panel discussion on green finance brought together institutional leaders, policymakers, and experts to explore the challenges and opportunities in financing India’s energy transition. The consensus: while the global green finance movement is facing headwinds, India continues to push forward, driven by strong government policies, institutional commitment, and a growing ecosystem of financial innovation.

India’s Green Finance: A Policy-Driven Outlier

Climate policy reversals in major economies have dampened global investor confidence. However, India has remained steadfast, thanks to initiatives by the Government of India and progressive states like Andhra Pradesh. These efforts have created a conducive environment for green financing, particularly through entities like the International Financial Services Centre Authority (IFSCA) based in GIFT City, Gandhinagar.

IFSCA is a global pioneer in mandating ESG-compliant finance, making it the first regulator to impose mandatory green financing requirements on banks operating within its jurisdiction. This has resulted in significant offshore investments and new policy frameworks that promote blended finance and ESG-linked lending.

Bank of India IBU’s Mr. Singh shared how they’ve aligned with IFSCA’s vision, developing ESG-specific policies, risk frameworks, and staff skillsets to meet the mandates. By sourcing capital from international concessional lenders and creating hybrid financing models, BOI IBU not only meets its ESG targets but also supports domestic and international green projects.

Demystifying Risk and Return in Green Lending

One of the key barriers to green finance has been the perception of high risk and uncertain returns. Mr. G.I. Rao of SBI offered a compelling case study about India’s solar industry to challenge this assumption. In 2010, high costs and unproven technology made banks wary of solar energy projects. But over the years, falling solar panel costs and policy stability have transformed the sector into a low-risk, high-demand investment. Today, competition among banks for solar projects is intense, with lending spreads reduced to as low as MCLR + 0.25%.

SBI has reached 50% of India’s 2030 solar target, proving that renewable energy can transition from a risky proposition to a cornerstone of sustainable banking portfolios. This success story lays a strong foundation for expectations around emerging sectors like green hydrogen and battery storage.

ESG as a Strategic Business Pillar

Mr. H.D. Vasappa from Union Bank of India emphasized the need for ESG to transition from a compliance checkbox to a core business strategy. He highlighted Union Bank’s institutional framework: quarterly ESG performance reviews by the board, climate-risk scoring, and integration of sustainable metrics into all credit assessments.

Beyond policy, Union Bank has embedded ESG into its operational DNA, rolling out training at branches, developing climate-specific scoring models, and aligning credit, risk, and operational departments for cohesive execution. The focus is clear: climate finance should be inclusive, scalable, and a default part of mainstream lending—especially in rural and semi-urban markets.

Bridging the Climate Adaptation Financing Gap

Hina Kushlani from Ernst & Young shed light on a lesser-discussed but critical issue: adaptation financing. While India needs $10 trillion by 2070 to meet its climate goals, $800 billion is urgently needed for adaptation—mitigating the impact of floods, heatwaves, and crop failures already affecting the country. Right now, only a small fraction of this is being mobilized, most of it through government disaster relief funds.

The private sector has been largely absent in adaptation financing. Kushlani argues that if climate risks are already impacting the bottom lines of companies—such as factory shutdowns during floods or data center outages—then private capital must be mobilized through innovative, blended finance models.

Leveraging Global Partnerships and Blended Finance

Addressing the high cost of capital, especially for early-stage green technologies, was another major theme. Mr. Singh from BOI IBU detailed how they are collaborating with Japanese and other foreign banks to bring in low-cost, ESG-compliant foreign currency loans for Indian firms. These include syndicated ECBs, sustainability-linked loans, and hybrid project financing where domestic and international banks share exposure.

Mr. Rao of SBI highlighted their multi-billion-dollar resource mobilization through international institutions like the World Bank, ADB, and EIB. One standout initiative is the creation of a $7,800 crore energy-efficient building portfolio, financing properties that not only reduce emissions but also cut operating costs.

Role of FinTechs and Institutional Innovation

Union Bank of India is setting the pace in leveraging the FinTech ecosystem for sustainable credit delivery. With over 80 FinTech partnerships and customized platforms for agricultural, retail, and MSME lending, Union Bank is pushing ESG lending to the grassroots—enabling rooftop solar installations and EV loans through digital STP journeys.

They’ve also partnered with NABARD, SIDBI, and RCITs to ensure last-mile green credit delivery. Their emphasis is clear: democratize sustainability, embed ESG in all lending operations, and institutionalize climate action across the banking value chain.

Designing Smart Instruments: First-Loss Guarantees and Risk Mitigation

Kushlani stressed that to scale up investment in nascent but essential technologies like green hydrogen and carbon capture, governments need to offer targeted risk mitigation tools. Instruments like First-Loss Guarantees (FLG) and Partial Credit Guarantees (PRG) must be simple, timely, and geared toward technologies with high capital risk.

Mr. Rao agreed, noting that green hydrogen could become as investable as solar energy if technology risks and capital costs are gradually brought down. Public-private coordination, clear policy direction, and performance-linked incentives will be key.

State-Level Leadership: Andhra Pradesh’s Role

Andhra Pradesh, with a renewable potential of 300 GW, is poised to be a leader in India’s green transition. However, currently only 12 GW of this potential is developed, and most of it is driven by private equity, not bank financing. Mr. Rao from SBI pointed out that new policies and structured PPP models, like those executed in Karnataka under PM-KUSUM, could unlock significant capital inflow.

BOI IBU has also called for deeper collaboration between state governments and banks based in IFSCs, emphasizing opportunities in green bonds, pooled sovereign-backed instruments, and international PPPs. Capacity building and awareness at the local level were also noted as essential for successful execution.

From Ambition to Execution

India has set bold climate targets and is making strides through policy, institutional commitment, and innovative financial instruments. Yet, the road ahead requires closing the funding gap, ensuring private capital participates meaningfully, and building mechanisms to finance not just mitigation but also climate adaptation.

The path forward lies in embedding sustainability into the DNA of financial institutions, designing smart risk-sharing instruments, leveraging FinTech innovation, and strengthening public-private partnerships. With these frameworks in place, India is well-positioned not just to achieve its green energy ambitions but to lead the global climate finance movement.

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