The development of green finance faces many challenges, such as “greenwashing” or false claims of environmental compliance, plurality of green loan definitions, and maturity mismatches between long-term green investment and relatively short-term interests of investors, according to Reserve Bank of India's (RBI) Report on Trend and Progress of Banking in India 2018-19.

Policy action is needed to establish an enabling framework that promotes the green finance eco-system in India by fostering awareness through coordinated efforts, the report said.

“Deepening of corporate bond market, standardisation of green investment terminology, consistent corporate reporting, and removing information asymmetry between investors and recipients can make a significant contribution in addressing some of the shortcomings of the green finance market,” it added.

According to an Asian Development Bank report, green finance involves engaging traditional capital markets in creating and distributing a range of financial products and services that deliver both investable returns and environmentally positive outcomes. This involves internalising environmental externalities and adjusting risk perceptions in order to boost environmentally friendly investments and reduce environmentally harmful ones.

The green finance ecosystem seeks to raise financial flows from banking, micro-credit and insurance sectors as well as from public, private and not-for-profit sectors.

Indian issuances

Indian issuances of green bonds compare favourably with its peers. With the green bond issuances gaining momentum—totalling about $ 7.7 billion during 2012-2018—SEBI set out disclosure requirements for the issuance and listing of green debt securities in India in May 2017, the RBI said.

Preliminary estimates conducted for Paris Agreement suggest that at least $2.5 trillion (at 2014-15 prices) will be required for meeting its climate change actions between 2015 and 2030. India’s ambition of generating 175 gigawatts of renewable energy by 2022 also entails massive funding, the RBI said.

The RBI report observed that the impact of climate change on the financial system manifests through various risks, inter alia, loss or damage to tangible assets arising from frequent natural disasters and financial stability implications emanating from volatility in food prices due to erratic weather trends, elevated credit spreads and greater precautionary saving.

"Enormous amounts of investments are required to combat climate change and bring about a transformation towards sustainable and low carbon development.

"As public funding alone cannot finance the necessary transformation required to address climate change, green finance is required to be harnessed for financing environment-friendly sustainable development," the report said.

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