Introduction: India’s Net-Zero Commitment

India has pledged to achieve net-zero carbon emissions by 2070, a landmark commitment aligned with global climate objectives. However, the challenge lies in balancing economic growth — driven by urbanisation, industrialisation, and population expansion — with climate sustainability.

Investment Challenge: The Core Obstacle

• To achieve its Nationally Determined Contributions (NDCs) by 2030, India needs approximately INR 10 trillion annually.

• Current green finance flows are less than 25% of this requirement.

• At COP29, developed nations committed only $300 billion annually, far short of the $1.3 trillion required globally for developing countries.

• This financing gap highlights the urgency of mobilising domestic capital for climate action.

Green Bonds: A Mixed Outcome

• Green bonds are debt instruments used to finance eco-friendly projects.

• India’s first sovereign green bond in 2023 saw strong investor interest (oversubscribed 4x).

• However, the second tranche (May 2024) was cancelled as investors demanded higher yields, undermining the concept of a “greenium”.

• Lack of investor incentives has made green bonds less attractive, limiting their potential.

Rise of Municipal Green Bonds: Decentralising Green Finance

• Cities are turning to municipal green bonds for funding local climate initiatives.

• Notable issuances:

  • Ghaziabad (2021 & 2024): Rs 150 crore for tertiary sewage treatment.

  • Indore (2023): Rs 244 crore for solar energy.

  • Ahmedabad & Vadodara (2024): Rs 200 crore and Rs 100 crore for wastewater projects.

  • Pimpri-Chinchwad (June 2025): Rs 200 crore for sustainable mobility.

• This marks a shift towards decentralisation, empowering urban bodies to independently fund green urban governance projects.

Regulatory Developments: Strengthening the Framework

• Transition bonds framework launched at GIFT City for carbon-intensive companies to raise funds with clear emission reduction plans.

• Climate Finance Taxonomy (May 2025): Aims to guide investors and standardise climate finance activities.

• SEBI has strengthened ESG regulations, including mandatory disclosures for green bonds.

• RBI has included green sectors in Priority Sector Lending, expanding access to credit.

Inequities in Green Finance Distribution

• Disproportionate allocation to mitigation (e.g., renewables, energy efficiency) over adaptation (e.g., resilient agriculture).

• MSMEs, vital for decarbonising supply chains, often lack access to affordable green credit, being overshadowed by large projects.

Conclusion: The Way Forward

India’s climate commitment is unquestionable, but financial infrastructure remains the missing link. A robust, inclusive, and diversified green finance ecosystem — one that includes urban bodies, MSMEs, and adaptation sectors — is essential.

If India can rise to the dual challenge of growth and climate transition through innovative and inclusive finance, it will not only secure its own future but also emerge as a global model for sustainable development in the Global South.

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