India stands at the forefront of addressing climate change, with ambitious goals to transition towards a low-carbon, climate-resilient economy. However, achieving these goals requires significant financial investments. The "Landscape of green finance in India" report released by the Climate Policy Initiative (CPI) provides a comprehensive overview of the country’s progress in mobilising green finance, highlighting achievements, challenges, and the road ahead.
Green finance in India encompasses both public and private investments directed toward mitigating climate change and enhancing resilience. The report evaluates green finance flows to key real economy sectors. It tracks both public and private sources of capital — domestic and international. This year's study tracks finance to the same real economy sectors as the 2022 report: clean energy, clean transportation, and energy efficiency. It also expands its scope to include a first-of-its-kind analysis of finance flows to adaptation-related on-farm activities in agriculture.
"India's green finance landscape has made significant progress, but there is a long road ahead. This report highlights critical areas where action is needed to scale investments and bridge existing gaps," said Vivek Sen, Director, Climate Policy Initiative India, commenting on the report launch.
The current state of green finance in India
Mitigation finance
In fiscal years 2021 and 2022, India’s tracked green finance reached an all-time high, amounting to INR 3,712 billion (USD 50 billion) annually for mitigation sectors. Solar energy led investments in clean energy, attracted INR 947 billion annually. Large-scale solar projects were a key focus, driven by falling costs and supportive government policies such as the Production-Linked Incentive Scheme for solar manufacturing.
Investments in energy-efficient appliances and green buildings surged, with domestic private finance accounting for 95% of the sector’s funding. Mass Rapid Transit Systems (MRTS) dominated clean transportation finance, accounting for 78% of flows. Electric vehicles (EVs) also saw significant growth, with investments tripling compared to 2019-20.
Adaptation finance
Adaptation finance, though smaller in scale, saw remarkable growth, reaching INR 1,092 billion (USD 15 billion) annually. Yet, these figures represent only a fraction of the estimated INR 11 trillion (USD 170 billion) required annually to meet the country’s climate commitments by 2030.
Domestic public sources, primarily through government budgets, provided 98% of these funds. Disaster risk management received the largest share, driven by increased government expenditure. Other focus areas included flood and cyclone mitigation and agricultural adaptation.
Given India's high vulnerability to the impacts of climate change, adaptation investment needs are likely to increase. This gap underscores the urgent need for India to scale up its green finance efforts.
Instruments of green finance
Debt instruments were the primary channel for green finance, accounting for 50% of total flows. This included balance sheet financing, low-cost project debt, and market-rate project debt. Equity and direct government expenditure constituted 29% and 16% of total finance, respectively. The reliance on debt highlights the confidence of lenders in the viability of green projects, particularly in sectors like clean energy.
Challenges and opportunities
Despite the progress, India faces significant challenges in scaling up green finance. The current flow of green finance meets only 30% of the estimated annual requirement for achieving India’s Nationally Determined Contributions (NDCs). This gap is even wider for adaptation finance. Limited availability of data on private sector investments and adaptation finance hampers effective tracking and planning.
Although supportive policies exist, there is a need for clearer regulations, such as a standardised green finance taxonomy, to guide investments.
The report underscores India's urgent need to scale green finance to enable low-carbon and climate-resilient development. It proposes actionable priorities for increasing green investment in India:
Furthering policy and regulatory measures to mobilise green finance
Continued policy support to critical sectors under green for building investor confidence and mobilising finance.
Aligning India's climate finance taxonomy with India's climate goals, harmonising it with existing country and global best practices, and ensuring that it remains a live document that can be updated to reflect policy progress and new economic activities adequately.
Introducing national and subnational regulations on adaptation to help drive adaptation action and investment across governance levels and key economic activities.
Coordinated action to accelerate green finance
Creating market-based incentives, innovative financial products, and de-risking investments to accelerate green finance.
Augmenting development banks' and FIs' important roles in mobilising green finance through interventions that direct capital to green initiatives.
Enhancing finance for adaptation
Ensuring that state-level adaptation plans indicate adaptation funding gaps, including sectoral gaps, to better direct adaptation investment.
Leveraging public finance to mobilise private investments by introducing enabling policies, incentivising climate risk disclosures, fostering public-private partnerships, and introducing innovative financing tools.
Improving data collection, reporting, and access
Putting in place an integrated domestic Measurement, Reporting, and Verification (MRV) system that streamlines financial attributes to enhance transparency and improve tracking of finance flows.
Regulatory institutions should standardise and mandate disclosures and ensure alignment with global standards.
The report underscores the necessity of increasing green investments through collaborative action among policymakers, financial institutions, and private stakeholders. India can accelerate its transition to a sustainable and climate-resilient economy by addressing policy gaps and introducing climate-focused regulations, incentivising private investments, and enhancing data systems.