Defining Climate Finance and What It Means For India

Generation after generation has seen the same cycle over and over again- same agenda, different fund name. Currently, it goes by the name Climate finance

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By Paromita Gupta


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The system is clear: every year, close to 200 nations from across the globe come under one roof, sit down, share their agendas, have showdowns, agree on treaties, and finalize an agreement. Developed countries and leaders promise to help developing and under-developed nations to fight the effects of climate change, only to return to their land and forget about everything. Generation after generation has seen the same cycle over and over again- same agenda, different fund name. Currently, it goes by the name climate finance.

Defined by the United Nations Framework Convention on Climate Change, climate finance refers to finance through local, national or transnational sources, particularly drawn from public, private and other sources, to help in mitigation and adaptation of actions that will help address climate change.

The Convention on the Green Climate Fund of COP16 in 2010, the Paris Agreement of COP21 in 2015, and the Kyoto Protocol of COP3 in 1992 have called for financial assistance, particularly climate finance, towards vulnerable nations, but to no luck.

In 2009, it was established that industrialized countries will be pledging US $100 billion annually to Least Developed Countries (LDC) and developing countries by 2020. The 2015 agreement additionally called for setting up a new collective quantified goal (NCQG) for climate finance before 2025. It was based on the US $100 billion a year tactic endorsed during the summit.

And no, India is not getting major funds from it. So, what should India do? Take inspiration from Africa and work towards building its own fund. The latter announced its 'African Climate Risk Facility' during COP27, a $14 billion homegrown financing facility built by over 85 insurers to cover the country's most vulnerable communities.

In a publication by Ernest and Young titled 'Is climate finance a pipe dream or a reality?' the management group offers us insights into what could possibly be India's choice for the long-term.

Multilateral and bilateral agencies, carbon pricing, multi-asset approach, sustainability-linked finance, public financing and private financing are our options. As per witnessed events, financial institutions such as the World Bank have supported lower-income countries, leaving little opportunity and funds to middle-income countries such as India to invest in low-carbon and climate-resilient infrastructure. India, being a steel intensive nation, will find it challenging to adhere to carbon pricing. The government and organizations can raise funds by offsetting their emissions by means of providing carbon credits via the market. The accumulated funds will then be diverted towards sustainable projects such as wind or solar. A potential possibility is through debt and equity. Encourage asset managers to offer investors a climate-focused theme to help finance the climate space, while carefully managing the risk associated along with a potential of higher return. Recently, sustainability-linked finance has been a compelling tool to raise capital. SLF incentivizes companies to part-take in the country's race to achieve sustainable development goals. Public and private financing are playing a significant role in creating green finance flow and decarbonizing the sector.

While self-reliance has been witnessed in the country's past, this strategy of self-funding may be putting pressure on the tax payers. India has put forth the demand for $1 trillion annually by developed countries towards developing and under-developed nations.

Paromita Gupta

Features Writer

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