Green Investment: Introducing Sustainability in Finance

Green Investment: Introducing Sustainability in Finance

Eco-friendliness and social responsibility mania is spread among all of us; could it spare the financial sector? Certainly not. Resultant, green investment, also known as eco-investment, took birth. Presently, green investment has become an ideal measure to boost the flow of financial instruments and other relevant services in trade, investments, environmental, economic, and social projects and policies. Green investment has turned to be the need of the hour, as the nation is striving hard to revive its economy surviving the COVID crisis alongside the climate change is growing to be a bigger challenge as the increasing floods, storms, heatwaves, and more needs to be addressed as it taxes almost five percent of our GDP. In order to address the issue, we could embrace green investments that have a positive impact on the environment and aid in cutting down the risk of climate change. 

The solutions that could be imposed to cut down the ill effects of changing climate, the nation could implement clean power, Energy-efficient real estate, climate favored agriculture, Clean Power, Low Carbon Emission Transport, Energy-efficient real estate, and climate favored farming. However, a huge sum of funding is needed to achieve this process known as green investment. 

Lately, India has set a goal to produce about 450G.Watt renewable energy capacities by 2030, and this is one of the most ambitious targets globally. To achieve this, the country needs nearly eleven lakh crore outlays each year. The power generation sector endures as the primary recipient of investment, despite other sectors such as solar power generation, sustainable transportation projects, energy-efficient real estate projects, and more. However, substantial financial support and favorable policy interventions from the Government have played a crucial role in stimulating the growth of the country's renewable energy sector. It was 111.000 crores and 137,000 crores during FY 2017 and 2018, respectively.

Nevertheless, it is far below estimates of Rs 11 lakh crores set by Nationally Determined Contribution (NDC). But given the current rates of availability of support despite the COVID 19 pandemic, the Government would need to find new and alternative means to fund the transition. It would have to help private sector participation improve the investments for a sustainable and transformational impact. International finance is also likely to come with "green strings" attached. Consequently, identifying and analyzing critical sources of finance, the instruments used for mobilizing and disbursing funds, and their ultimate beneficiaries become critical for diagnosis, planning, and monitoring green investments in the country.

India's Stance on COP26

COP (Conference of the Parties) signifies 197 nations that accepted the United Nations Framework Convention on Climate Change in 1992. Back then, the US and few other countries endorsed the treaty to combat "dangerous human interference with the climate system" and stabilize levels of greenhouse gas emissions in the atmosphere. Resultantly, these countries joined to form a committee. This is the 26th time countries have assembled under the convention, thus known as COP26. The UN and UK hosts have revealled that they prefer stay hopeful of constraining rising global temperature to under 1.5 degrees Celsius.

Meeting that goal means all countries must commit to cutting emissions faster and more profoundly than they already are doing. On the other hand, the wealthy countries are also expected to drive financial support to aid the most vulnerable ciuntries adapt to the impacts of warming and build economies that don't depend on fossil fuels.

Green Investment Flow

Green investment flows go as climate-specific investments, notably renewable energy, energy efficiency, transport vehicles, forestry, and adaptation to climate change. Flow estimates are lacking in other sectors, such as transport infrastructure (roads and airports), buildings, industry, water, and agriculture. Still, business-as-usual spending predictions can be used as a proxy. Total investment in climate-change mitigation and adaptation in 2011 was estimated at US$ 268 billion from the private sector and US$ 96 billion from the public sector (US$ 364 in total, of which US$ 14 billion was for adaptation). 

Since 2004, a subset of this climate-specific investment, such as clean-energy asset finance, investment has been escalating at a rate of 32% per year. Investment flowed in 2011 was up 93% from 2007, the year before the global financial crisis. Also, the southern-originating flowed for clean-energy asset financing are steching those originating from the North. Most of this Southern finance is being used domestically and is an important emerging source of capital.

Glancing through the climate-specific investments, financial flows still fail to close the cost gap. There is regional and technological bias in investment patterns, and investment is disproportionately particular in the North and emerging markets, especially wind and solar technologies. Investment in energy efficiency and sustainable transport is also lagging. Financing for climate-specific investment was split about 1:3 between public- and private-sector investments in 2011.

It is hinted that while there is increasing data on air pollution, emissions, and green job creation in India, there is little to no comprehensive data available on whether or not the financial sector is keeping pace with India's green economic development goals, or which sectors are being financed adequately or under-served.  India has a target of 175,000 megawatts (MW) of renewable energy by 2022. At present, the total installed capacity of renewable energy across India is 88,793.43 MW.