Around 40% of India’s population will live in cities by 2036, according to government projections, but climate change is already exposing these urban areas to extreme water and heat stress. At present, more than 40 Indian cities are listed in the world’s 100 most vulnerable cities to environmental and climate-related events (Verisk Maplecroft 2021). The COVID-19 pandemic has only intensified these issues, increasing food insecurity and unemployment among India’s urban poor in recent years (Bhalotia et al. 2020).

The governing bodies that oversee India’s cities and states face formidable and complex challenges in bridging the urban development gap in this context. Addressing these challenges will require a systematic and comprehensive assessment of the current levels of urban green finance directed to climate change mitigation, adaptation and other environmental activities. This will help to map the role of relevant stakeholders and enhance understanding of governance and financing structures.

Increasing the transparency and accountability of urban climate governance in this way will serve as a starting point for identifying investment gaps and exploring opportunities for mobilizing new resources. It will also help to identify ways to mainstream climate change and environmental objectives at the central-, state-, and city-level through a well-defined sectoral planning and budgeting process.

With these aims in mind, this study examines the landscape of urban green finance in two Indian cities, Hyderabad and Kolkata.

The sectors included in this study are:

• Clean Energy and Energy Efficiency
• Sustainable Transportation
• Waste and Water Management
• Air Quality
• Disaster and Risk Management
• Urban Green Coverage, Conservation and Biodiversity

It attempts to map green finance disbursements from public and private sources of finance at both national and international levels towards sectors contributing to climate change mitigation and adaptation, and other environment-related activities.

The study is based on an extensive literature review, collection of data from primary and secondary sources and consultations with relevant stakeholders at the city and state level. It has been found that the municipal corporations of both Hyderabad and Kolkata are heavily dependent on the central and state governments for financing. This is in line with findings from other reports (Udas-Mankikar 2018).

In March 2020, the COVID-19 pandemic hit the world. The restrictions put in place across much of the world to control infection spread had a negative impact on the financial resources of the state and central government budgets. India’s GDP contracted by up to 7.7% in FY 2021, tax collection slowed in 2019-20 according to the Centre for Budget and Governance Accountability, and central government spending dropped as the nation’s scarce resources were used to fight the pandemic (CBGA 2021).

The impact of COVID-19 is yet to be addressed in a big way in the West Bengal and Telangana State Government budgets. Reports suggest that Hyderabad Metro and Kolkata Metro may have lost about USD 140 million and USD 22 million in revenues respectively during the lockdown. Kolkata Metro’s loss, at 82%, was the highest in the country in relative terms (Gulankar 2021; PTI 2021).

There have been promising signs of recovery after a general easing of lockdown restrictions, but the actual impact remains to be seen amid the subsequent waves of the pandemic (IE 2021).

On the other hand, the pandemic has amplified the need to undertake sustainable activities at the city level. As such, this study has devised the following recommendations:

National governments should build processes and capacity for harmonized climate budgeting: Various policies, missions and schemes provide strategic direction for climate action at the city level. An annual tracking exercise embedded in the budgeting process to measure the volume of green finance flows from source to end-use at the city level would improve transparency and accountability.

Harmonization and centralization of data collection in specified reporting formats will help determine the ‘greenness’ of activities and estimate total flows. This will support policymakers in assessing the success of policies and governance initiatives to mitigate the adverse effects of climate change. It will also build investor confidence.

State governments should create an enabling environment for enhanced urban climate action: The success of local climate action at the city level is highly dependent on the overall extent of decentralization of governance in the state. The level of autonomy of ULBs differs significantly across the relevant sectors for climate governance. Active integration and coordination across departments is required at both horizontal and vertical levels, as well as the devolution of funds from states to ULBs.

For instance, Kolkata has adopted fewer renewable energy targets due to a lack of clear mandates, a lack of coordination with state-level entities, and a lack of funding compared to other sectors like urban planning or water management.

State governments can play a proactive role in providing conducive policy, institutional and financial support to the municipal governments to build local capacity for incorporating climate change into urban development processes.

Local governments should:

Mainstream climate change objectives into existing finance flows: Municipal corporations are largely spending their resources on providing urban civic services such as water supply, sanitation, sewerage, roads and street lighting, and parks.

By building synergies between local spending, and national and state environmental objectives, municipal bodies can create a sustainable environmental impact. They can play a proactive role in climate change mitigation and adaptation, as well as meeting other environmental objectives like reducing air pollution and improving waste management.

Explore new and innovative financing mechanisms: Both Hyderabad and Kolkata have a long way to go to address the issues arising from multi-level governance. They have limited technical and financial capacity to raise funds due to poor governance, financial health and lack of autonomy (PRS, 2017). There is clearly a need to better exploit their own revenue sources through value-capture financing such as property taxes, land monetization and car parking fees.

These cities could also explore alternatives such as raising debt through the use of innovative financing mechanisms (Udas-Mankikar 2020). Initiatives like the Global Innovation Lab for Climate Finance has mobilized more than USD 2.4 billion in sustainable investments globally and has presented innovative, catalytic and sustainable financial solutions for mitigation and adaptation measures in cities.

A recent report, “An Analysis of Urban Climate Adaptation Finance”, elaborates on the use of financial instruments in the urban adaptation context. It details resilience bonds, disaster risk insurance pooling, public-private partnerships, and catastrophe bonds (CPI 2021).

If such innovative instruments are being used elsewhere, they should be studied further in the Indian context. Indeed, a 2017 IFC study, “Climate Investment Opportunities in South Asia”, estimated a total climate-smart investment opportunity of USD 3.1 trillion in India from 2018 to 2030 (IFC 2017).

Risk pooling and risk transfer mechanisms are picking up in some parts of the world as effective instruments for disaster management and could also benefit cities like Kolkata (ACT Alliance 2020). India became the second-largest market for green bonds in 2020 (Joshi 2020).

There is a need for concerted effort and strategic intervention to improve the creditworthiness of cities and develop an enabling environment to mobilize capital markets for sustainable urban infrastructure (CBI 2018).

The full report can be accessed here