India is ranked the fifth most vulnerable nation to the effects of climate change with 2.5-4.5% of its GDP at risk annually. While India has adopted a number of fiscal and policy measures to address this challenge, increasing green investments at this scale will require a more intense focus of India’s financial system towards green sectors. There is a growing need to sensitize India’s financial sector to the importance and benefits of Green Finance.
A major barrier in this effort is the lack of an agreed definition of Green Finance in India. This report indicates that a formal definition of Green Finance in India would enable more precise tracking of finance flows to green sectors, which, in turn, would help design effective policy, regulations, and institutional mechanisms directed towards increasing both public and private investments in green sectors. India’s Green Finance definition could be formed through a combination of adopting international practices, developing a set of principles for green economic activities, and obtaining stakeholder views. This analysis finds that a combination of these approaches may be the best fit for India, with a finance sector taxonomy foundational to driving green economic activity.
This definition could be a first step toward developing a green finance strategy in India. Additional steps would include disclosure of climate change risks in the financial system, directed policy and regulations to incentivise green finance, and penalties for carbon-intensive investments. This report proposes forming a taskforce of relevant stakeholders to take forward these approaches.