Clear Rules, Corporate Bond Market Can Help Meet 2030 Sustainability Goals: Experts

India's interim sustainable development goals will require massive funding that needs to be bridged through 2.5% of gross domestic product each year till 2030, according to an RBI report.

The process of raising funds amounting to Rs 86 lakh crore would become simpler if India's corporate bond market picks up among other policy dividends, said industry experts.

If the RBI estimates are taken into consideration, India will need new investments in the range of $7.2 trillion to $12.1 trillion by 2050, Davinder Sandhu, co-founder and chairman at Primus Partners, said.

Although India's green bond issuances have touched $21 billion by 2023, private sector issuance accounts for 84% of this amount. The current finance envelope is inadequate, assuming India will need $10 trillion by 2050, he said.

According to Sandhu, expenditure on India's declared action plans for reduction in greenhouse gas emissions for renewable energy and other initiatives on ethanol, methane, and hydrogen will have a larger up front funding need. “For India, the challenge is two-fold—one, to find the funding in the medium term, and two, to deploy up to 40% in the short term by 2030,” Sandhu said.

Ramnath Iyer, co-founder and chief executive officer of Environment Social Governance Data & Solutions, a company providing data-based services to BFSI and institutional investors looking for ESG solutions, said that India's bond market is shallow, and bulk of the finance is provided by banks, and currently banks have no specific mandates towards green lending.

“To increase traction in green financing, efforts should be directed towards expanding the bond market and encouraging corporate bonds specifically earmarked for sustainable projects."

He also suggested, that, green lending can either be classified as priority sector lending or the capital provisioning requirements can be reduced for green loans.

The Indian economy is increasingly embracing green finance as an important instrument to move towards achieving its sustainability goals, said Satyam Kumar, CEO and co-founder of LoanTap.

“Initiatives like green bonds, carbon pricing, and sustainable investment strategies are driving the shift toward a greener economy in India,” he said, adding that the overall long-term stand for most of the new startups and organisations that are into sustainable projects is yet to be fully established, and that makes it difficult to lend to such ambitious projects.

Moreover, a defined framework that can be followed for the green finance is also missing, Kumar added.

Challenges In Green Financing

There is a general perception that most financial institutions still view green financing under the same credit lens as the regular loans associated with traditional non-green borrowers.

Green finance also faces some perceived investment risks, like high cost of debt, lack of awareness, lack of a proper regulatory framework and other rigid policies. The government has been taking steps. However, there is a need to focus on a long-term goal of green financing, Pankaj Gupta, CEO of Mufin Green Finance said.

While financing institutions in the government, private, and multi-lateral space have a challenge to create these financing tools, industry will have to upscale its ability to absorb such investment volumes and deliver assets without project delays, Iyer said.