In recent times, there has been a significant shift in India’s sustainability goals. The nation is notably transitioning towards adopting green financing into the economic fabric while addressing environmental concerns. Green finance merges financial investments with eco-friendly approaches and contributes immensely to the country’s renewable energy development.
Furthermore, in the latest Report on Currency and Finance, the Reserve Bank of India (RBI) identified climate change as a major concern to financial stability, stating that extreme weather events can affect the country’s GDP by 2-6 per cent every year upto 2030. As a result, the nation strives to integrate Green finance at a broader scale. As India moves from 2024 to 2025, it finds itself at an epicentre of opportunity and responsibility, with green financing emerging as an effective method for attaining environmental and socioeconomic objectives.
Understanding Green Finance
Green financing has always been a movement that is really indicative of the modern need to be aware of the influence of human activities on the environment. As fintech tries to automate financial services and optimise procedures, green finance in India focuses on lowering emissions and increasing biodiversity. In general, green finance includes financial investments that are both environmentally friendly and socially responsible. This form of finance is rapidly emerging as a valuable instrument for combating climate change and fostering sustainable development. Some of these financial instruments include green bonds, green loans, green home equity loans and mortgages, green equity funds and green credit cards.
Role of Technology in Green Financing
Technology stands at the forefront of this shift in the fintech industry. Green Finance has become an influential force in the fintech sector, owing to technological advancements like Big Data and artificial intelligence (AI). Big data can be employed to assess the environmental effect of a company’s assets, including the traceability of its supply chain. This information can further help in assessing fixed-income portfolios’ exposure to various risk scenarios connected to the Sustainable Development Goals (SDGs). Additionally, AI can evaluate whether an organisation has a positive or negative influence on the SDGs, helping investors to make more educated decisions that meet sustainability objectives. AI can also combat climate change with its potential to foresee, solve problems and forecast. For instance, AI-augmented satellite imagery can be used to identify natural catastrophes, vegetation and forest cover, offering key information on environmental changes.
Government’s Role in Promoting Green Finance
The Indian government issued its first green sovereign bond in 2023, generating USD 1 billion at a reduced cost of capital compared to conventional financing. The RBI is also looking forward to the successful implementation of new standards for climate stress testing, climate transparency, and green deposits at banks. SEBI, the capital markets regulator, has been chasing green bonds and corporate transparency for quite some time. The organisation has modified its methodology and produced new guidelines for blue (ocean) and yellow (solar) bonds, as well as ‘dos and don’ts’ to combat greenwashing.
Furthermore, by 2070, India aims to attain net-zero emissions. Concurring to the Council on Energy, Environment, and Water, India would require a USD 10 trillion investment to achieve this objective. Banks would therefore play a critical role in accomplishing these objectives and closing any gaps.
Achieving Financial Stability with Green Finance
Incorporating sustainability into financial institutions is not so easy. Cross-sectoral cooperation is critical for incorporating green financing into India’s overall economic strategy. This cannot be achieved with financial institutions alone. The success of green financing relies on the active engagement of sectors like energy, agriculture and manufacturing, which accounts for the majority of India’s carbon emissions.
The RBI has also made significant changes in managing the relationship between green finance and financial stability. In its biennial Financial Stability Report, the RBI has also underlined the necessity of including climate risks in bank stress tests. These steps, however, require the accompaniment of laws that promote improved cooperation among regulators, industry and financial institutions.
Conclusion
In conclusion, India is set to mark a turning point in its quest for sustainable growth. By leveraging green financing, expanding renewable energy and fostering public-private partnerships, the country addresses serious environmental challenges while making socio-economic development. Technology and global cooperation will also strengthen India’s ability to scale effective programs, paving the path for a more resilient future.
Views of the author are personal and do not necessarily represent the website’s views.
Nehal Gupta is the Founder and Managing Director of Accelerated Money For U (company name is AMU Leasing Pvt. Ltd.), a technology-driven Non-Banking Financial Company (NBFC) that focuses on encouraging sustainable development. Nehal, a seasoned entrepreneur with expertise in the Banking, Financial Services, Insurance (BFSI), and FinTech industries, has quickly made her mark in the EV Financing ecosystem.
