The world has entered the defining decade of action in the fight against climate change. We are in the final sprint before we face irreparable damage to our planet.
Because of this, the collective aim has seen an upward shift - from emission reduction to decarbonisation. Companies and nations are pledging to move to net-zero and are developing pathways towards decarbonisation.
In this context, as part of Xynteo’s India2022 (now Vikaasa) Leaders Inspire series, we heard from Namita Vikas, Founder and Managing Partner at auctusESG and Global Board Member of the Climate Bonds Initiative, to discuss approaches for financing decarbonisation initiatives in India. The virtual event was held on February 19, 2021, with more than 50 highly engaged participants and senior leaders from the India2022 partnership.
During the event, Namita Vikas highlighted that the financial sector — from banks to institutional investors to philanthropy — can play a role in creating pathways to decarbonisation: “Boardroom to copy room approach is required today,“ she said. “If there are certain aspects of decarbonisation that sit on the board agenda, they will get actioned.”
India needs investments in excess of US$ 2.5 trillion by 2030 to achieve the UN Sustainable Development Goals, and that number only increases manifold in for complete decarbonisation. Therefore, we must systematically assess the capital needed, how much is available and how the gap will be filled. Currently, the financial industry lacks an asset-tagging mechanism to quantify the investments being made within sectors or in support of the SDGs. That limits the process of setting targets and measuring progress.
Namita shared that businesses remain at risk due to the likely impacts of climate change. Aware of this, investors are measuring companies’ commitments and performance on GHG emissions and climate change risk, specifically in carbon-intensive sectors.
The financial sector has been proactively developing solutions that promote better use of resources such as green bonds, which have seen an exponential upsurge since 2014. To further unlock capital, we need a contextual definition of what “green” constitutes in a particular sector or geography.
Technology investments from climate finance sources are often not forthcoming in industries that lack a clear definition of green interventions.
In addition, as institutional investors have to generate a certain amount of financial return as their fiduciary duty, they need greater awareness and expertise to assess and price the risk in emerging sectors and technologies. This requires both training and greater availability of ESG analysis tools and practitioners.
Finally, Namita highlighted the role of blended capital facilities, which can create an integrated approach across investor groups and introduce more asset classes into the system:
“Blended capital, guarantees and other credit enhancements are very important because (some) investors do not have a large risk appetite.”
The conversation was much awaited, with several India2022 partners seeking insights into this topic. Participants in the session asked wide-ranging questions, from the role of government-backed capital in green finance, the potential of carbon markets, hybrid and blended finance and how green products can go mainstream. The discussion inspired many ideas for further action and set out the context and need for more sessions on related topics under our Leaders Inspire series.
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