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Green Finance, its challenges, and
opportunities in India
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Abstract
The study on climate/green finance in India is directed towards developing specific
strategies for addressing the gaps faced by green finance providers in the agriculture sector.
Climate change is one of the most difficult challenges that the world faces today, and its
resolution requires global cooperation from countries all over the world. The 2015 Paris
Agreement was an effort in this direction. It saw as many as 195 countries commit to
drastically reducing their greenhouse emissions (through mitigation actions) and protecting
their people from the negative impacts of climate change (through adaptation actions). As
countries prepare to undertake climate actions that they have committed to in Paris, it is
becoming clear that significant investments will be required to meet these ambitious goals.
Policies would need to be backed by financial commitments if countries are to “reduce their
emissions, decarbonize their economies, and adapt to the impacts of climate change”.
It is important not only to mobilize climate finance, but also to build a robust, transparent,
and accountable public finance system to ensure that funds, both domestic and
international, are used more effectively and efficiently. It is also important to ensure that
the allocation of funds is more sensitive to the needs of people, particularly the
marginalized and vulnerable. All this is possible through effective public engagement and
oversight of the public spending process.
Climate/Green finance refers to the flows of capital from both public and private sources
that support and finance climate-smart investments and aim to achieve climate change
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adaptation and mitigation objectives. Climate finance is considered to be a source of capital
for climate-smart investments that has demonstrated its ability to unlock additional public
and private capital from a variety of sources, including domestic national budgets, the
private sector, bilateral and multilateral actors, DFIs, and institutional investors.
1.Introduction
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1.1 Climate finance Architecture
Methodology:
Case studies
Union Budgets
Budgetary support to National Missions
Budgetary support to other climatic strategies
State Budgets
Climate Finance in India
Climate Funds
NCEF, NAF, NDRF, CAMPA
(Funded by Union Budget and
Cesses)
Private Climate Finance CDM,
Debt Finance, Private Equity,
Venture Capital
International Climate Finance
Multilateral Funds Bilateral
Funds International Private
Finance
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1.2 Objective
• To formulate strategies to address the challenges faced by the green finance providers
(supply side) in the Indian Agriculture sector.
1.2.1Research questions
• Who are the green finance providers?
• How climate finance/capital has been invested in different sectors/industries?
• How climate finance has been used in Agricultural sector?
2.Methodology
In view of limited research on this topic, the methodology adopted is the review of global
case studies on financing climate-smart agriculture.
It is reflected in this cases that the state and central governments often take the lead in
addressing initial financial barriers by providing funds or risk mitigation through grants
and loan guarantees or through enabling legislation. These interventions help engage
private sector actors and mobilize private funding by reducing perceived or real risk. Each
case features financial instruments or approaches that increase the liquidity of agricultural
value chains. The public and private instruments include climate insurance, remote
technical assistance and impact verification, proxy credit scores, and mandatory public
green infrastructure set-asides, each designed to grant small farmers access to the finance
they need to invest in climate resilience and adaptation. Overall, the cases generate a
range of benefits for all the stakeholders involved.
With small agricultural producers in India facing similar climate and financial stresses,
the detailed case studies in the next section may provide some applicable lessons.
2.1 Africa: Climate- Smart Lending Platform
Smallholder farmers worldwide are particularly vulnerable to climate hazards, which
include drought, flooding, and desertification, among other things. Investments in climate
resilient farming practices (also known as climate-smart agriculture) can help protect
livelihoods and – in some cases – increase productivity and incomes, but access to
appropriate financing instruments is a common challenge for smallholder farmers.
Although smallholder finance is growing in scale and currently accounts for US$50 billion
globally (Dalberg 2016), there is still a significant financing gap between smallholders and
lenders with smallholder lending portfolios. This is often because these investments are
considered risky and climate risk is not well understood or documented.
