Date | Version April 01, 2022| 1.0
Keywords ‘Green Financing’, ‘Cop 26 Summit’, ‘Environment’
List of Legislation Referred i. RBI Notification‘Corporate Social Responsibility, Sustainable Development and Non-Financial Reporting – Role of Banks’

ii. RBI Master Direction ‘Priority Sector Lending (PSL) – Targets and Classification’ (Updated as on October 26, 2021)

Jurisdiction India


Abstract- In its workshop organized recently, the NITI Aayog and WRI India emphasized the importance of green financing in decarbonizing the country’s transport sector. Green Financing, thus, is the way forward towards achieving the target of net-zero emissions set forth by India in the COP26 Summit. The article seeks to throw light on the current position of green financing and its future in India while focusing on the initiatives taken up by the Government in this regard, and the way ahead.


Environmental conditions, not just in the country but also in significant parts of the world, are degrading each day. The only possible solution to such alarming issues is shifting from conventional to renewable energy sources. However, unlike the readily available and cheap cost of financing in the case of conventional sources, the generation of renewable energy comes along with a massive outlay. Thus, the need for “green financing.”

“Green finance” refers to the arrangement of finance for facilitating any activity or project environment-friendly in nature and can eventually assist a nation in achieving its environmental goals.

While the importance of Green finance is easy to comprehend with the tremendous increase in global warming levels, the nations at the COP26 Summit in Glasgow specifically recognized it. The Summit, on its third day, emphasized on green financing, which aimed to steer attendees toward increasing public and private funds for sustainable projects, as well as to cause financial institutions to build emissions assessments into their investments.[1]


The United Nations Environment Programme predicts that global temperatures could rise over 3°C this century if we continue business as usual.[2] The research undertaken by the Swiss ReInstitute shows that we are looking at a 10% loss in total economic value by the year 2050.[3] These figures demonstrate that even the countries that are not very climate conscious, so to speak, should worry about the direct effects of climate change on their economy.

India, as a country, has one of the loftiest goals set by governments in the present time when it comes to the economic growth of a nation. In such a situation, it becomes crucial for India to be highly conscious of its emissions and ensure that it takes the right step forward in producing renewable energy. To come closer, if not fulfilling its commitment at the COP26, that is, to cut down its emissions to net-zero by 2070 and to increase its non-fossil fuel energy capacity to 500 GW[4], India has taken steps towards fostering the growth of green finance.

India has started emphasizing green finance as early as 2007. In December 2007, the Reserve Bank of India ("RBI") issued a notification on “Corporate Social Responsibility". In 2011, the Government formed the Climate Change Finance Unit to function with the Ministry of Finance to “serve as the nodal point on all climate change financing matters in the Finance Ministry” [5]. It was supported equally by the banking sector. The RBI took up the first initiative and published a notification focusing on the importance of sustainable development and the required efforts by banking institutions.[6]

According to the Master Directions issued by RBI, “renewable energy” falls under the “priority sector” category. The RBI has approved borrowing for purposes such as solar power and non-conventional energy based public utilities up to a limit of Rupees 30 crore, and borrowing for individual households to a limit of Rupees 10 lakh/borrower.[7] The Reserve Bank had also become a member of the “Network for Greening the Financial System” to support the development towards a green economy.[8]

GREEN DEAL -2070. There have been discussions and deliberations about the Green Deal that India needs to prosper economically and environmentally. According to Mission 2070: A Green New Deal for a Net-Zero India, the country’s transition to a net-zero economy could create over 50 million jobs. It would also contribute more than $1 trillion in economic impact by 2030 and around $15 trillion by 2070.[9] This aim was set forth by our Prime Minister at COP26, held in Glasgow in 2021. According to the Council on Energy, Environment, and Water (CEEW), India will need investments of at least $10 trillion to achieve its net-zero goal by 2070.[10]  Clearly, India needs to actively work on developing more and more means of green financing in the country.

GREEN BONDS. “Green Bonds” are a kind of an “instrument” used to fund initiatives that benefit the environment, such as renewable energy and energy efficiency. While “green bonds” are stated to be our best bet for attaining our green financing goals, they are often not the preferred choice of many investors owing to the vague drafting of the provisions that govern the same. In a press release (SEBI, 2016), the regulatory body stated the “definition of green bonds may be as specified by SEBI from time to time” but does not give particulars regarding an expected date or reasons for specs. And withal, the existing regulation bears an additional clause, also making other categories subjects to specification by SEBI in the future (SEBI, 2017)[12] . Such a hazy environment around green bonds in India is probably not the best way to attract investors to invest in sustainable financing, of which green bonds form a considerable part.

Another problem associated with green bonds is the high cost of issuing. According to a recent study by the Reserve Bank of India (RBI), the cost of issuing green bonds has generally remained more elevated than other bonds in India, mainly due to asymmetric information.[13] The most common issuers of green bonds are PSUs or private companies that have reported to have lower debt-to-assets ratio.[14]

There is a lack of clarity regarding what comes under the ambit of “green projects”. "Green taxonomy" includes identifying and classifying green projects and assets. Having a robust taxonomy for what qualifies as ‘green’ helps market players to weigh risks and manage their strategic purposes to achieve sustainable goals. This is another kind of vagueness that is associated with green finance in India, which again gives a grey and uncertain picture to the prospective investors in India, discouraging them from investing further in green finance.


  1. Incentivize Green Bonds

Considering the potential that green bonds hold, there should be incentives for issuing Green Bonds. Subscribers to green bonds enjoy direct financial benefits in several jurisdictions, such as tax exemption on interest or tax deductions. India should also consider such direct financial benefits.

  1. Revision to the meaning of Green Taxonomy

The EU Green Bond Standard is known for its comprehensive approach and has laid down the ambit of green projects. It sets out three requirements:

  • the project should substantially contribute to one of the six environmental objectives;
  • it should not do any significant harm to the other five objectives, and
  • it should comply with minimum standards.

Unlike India, this standard set out by the EU has been considerably more successful since the three requirements are interdependent and not independent of each other. Thus, they make the identification of green projects effortless for the investors to understand and generate better quality green projects that greatly assist the overall investments that the green projects need.

  1. Borrowing cost

The cost of issuing green bonds has generally remained higher than the other bonds in India. Possibly, due to the asymmetric information. Therefore, developing a better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in this segment. [15]

  1. Market Infrastructure Development

In the Indian context, market infrastructure development would mean an increase in coordination between investment and environmental policies and an implementable policy framework for national and state levels to address existing frictions. In this vein, some of the policy measures such as deepening of the corporate bond market, standardization of green investment terminology, consistent corporate reporting, and removing information asymmetry between investors and recipients can make a significant contribution to addressing some of the shortcomings of the green finance market (RBI, 2019).

  1. Related initiatives

Engage with industry bodies that have taken initiatives towards expanding ‘green buildings’ designed to consume less water and energy resources, maintain better waste management, and provide healthier spaces for living The Government at all levels can possibly engage with these bodies to better assess their financial and operational needs. It may also undertake policies that make the production and distribution of non-conventional energy profitable, especially for smaller firms.


Real change will happen when there is acceptance of the level of compliance with environmental norms, willingness to comply and appropriate direct incentive for optimizing renewable-based energy supply options.

The views expressed by the authors are personal and do not necessarily reflect the view or opinion of Alaya Legal.

[1] COP26 Day 3: Taking initiative (last visited on April 1, 2022), https://www.un.org/en/climatechange/cop26-day-3-taking-initiative

[2] Amitabh Chaudhary, Green finance can bolster India’s transition to net-zero. Here’s how, WORLD ECONOMIC FORUM (Jan 5, 2022), https://www.weforum.org/agenda/2022/01/green-finance-bolster-india-transition-net-zero/

[3] Swiss Re Institute, available at https://www.swissre.com/institute/research/topics-and-risk-dialogues/climate-and-natural-catastrophe-risk/expertise-publication-economics-of-climate-change.html (last visited on April 1, 2022).

[4] National Statement by Prime Minister Shri Narendra Modi at COP26 Summit in Glasgow, available at https://www.mea.gov.in/Speeches-Statements.htm?dtl/34466/National+Statement+by+Prime+Minister+Shri+Narendra+Modi+at+COP26+Summit+in+Glasgow (November 2, 2021).

[5] Department of Economic Affairs, Climate Change Financing Unit, available at https://dea.gov.in/divisionbranch/about-us (last visited on April 1, 2022).

[6] RBI Notification, available at https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=3987&Mode=0 (last visited on April 1, 2022).

[7] RBI Notification, available at https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11959#Renewable_Energy (last visited on April 1, 2022).

[8] RBI Notification, available at https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51496 (last visited on April 1, 2022).

[9] Mission 2070: A Green New Deal for a Net Zero India, WORLD ECONOMIC FORUM (Nov. 2021), https://www3.weforum.org/docs/WEF_Mission_2070_A_Green_New_Deal_for_a_Net_Zero_India_2021.pdf

[10] Amitabh Chaudhary, Green finance can bolster India’s transition to net-zero. Here’s how, WORLD ECONOMIC FORUM (Jan. 5, 2022), https://www.weforum.org/agenda/2022/01/green-finance-bolster-india-transition-net-zero/

[13] Green Finance in India: Progress and Challenges, RBI Bulletin January 2021 (Jan, 2021), https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/04AR_2101202185D9B6905ADD465CB7DD280B88266F77.PDF

[14] Green Finance in India: Progress and Challenges, RBI Bulletin January 2021 (Jan, 2021), https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/04AR_2101202185D9B6905ADD465CB7DD280B88266F77.PDF

[15] Green Finance in India: Progress and Challenges, RBI Bulletin January 2021 (Jan, 2021), https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/04AR_2101202185D9B6905ADD465CB7DD280B88266F77.PDF

[16] Green Finance in India: Progress and Challenges, RBI Bulletin January 2021 (Jan, 2021), https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/04AR_2101202185D9B6905ADD465CB7DD280B88266F77.PDF

Disclaimer The views appearing in this article are those of the author and not of Alaya Legal. The author may be reached at by writing to Alaya Legal at contact@alayalegal.com. Nothing herein is or may be construed as legal advice.