Overview

This Roundtable Outcome Report captures the key takeaways from a high-level dialogue hosted by Climate Bonds Initiative and Indicc, in association with ESYA Centre, on 26 February 2024 in New Delhi. The Roundtable convened policymakers, financial institutions, multilateral bodies, rating agencies, and sector experts to deliberate on actionable strategies for sub-national governments to mobilise green finance at scale. It also marked the release of two companion publications, 'Financing Sustainable Transition in States: Options for Policy and Institutional Roadmap' and 'Financing Green Infrastructure in States: Case Studies'.

The discussions centred on a forward-looking, integrated approach for state action, spanning macroeconomic considerations, the urgent need for an Indian Sustainable Finance Taxonomy, project pipeline development, instruments to enable financial flows, and the often-overlooked priority of adaptation finance. The overarching frame emphasised that finance flows must balance public interest, financial viability for investors, returns for private developers, and efficient delivery for consumers, in line with the spirit of Articles 39(b) and 39(c) of the Constitution of India.

Key Highlights

• India's high combined debt-to-GDP ratio of about 80% is offset by a favourable interest rate-growth rate differential, making borrowings sustainable, but a formal coordination mechanism between fiscal and monetary policies is needed to crowd in private capital for sustainable infrastructure.
• An Indian Sustainable Finance Taxonomy is urgently required, and in the interim internationally recognised taxonomies should be leveraged to prevent greenwashing; state-level green budgeting methodologies must also be harmonised with these taxonomies to enable instruments such as green bonds, blended finance, PPPs, and InvITs.
• Robust project pipelines depend on identifying scalable sectors (such as urban infrastructure and housing), codifying cost differentials between conventional and green materials in a rates code, building risk evaluation matrices for green projects, and strengthening state-level transaction advisory bodies (such as iDeCK in Karnataka and PDCOR in Rajasthan), potentially through NaBFID's IFC partnership.
• Financial flows can be enabled through credit enhancement facilities, state-level Blended Finance Facilities in partnership with MDBs and DFIs (drawing on the Goa-World Bank model), institutionalised payment security mechanisms, and reviving the 2017 Expected Loss-based credit rating system for infrastructure to better reflect de-risking measures than the conventional Probability of Default approach.
• The RBI should consider expanding Priority Sector Lending beyond renewable energy to include broader green adaptation and mitigation projects, while states and ULBs can adopt consortium bidding and pooled financing mechanisms (along the lines of the Tamil Nadu Urban Development Fund) and standard bidding guidelines inspired by Rewa Ultra-Mega Solar Limited to improve price discovery.
• A dedicated mapping exercise of financial instruments for adaptation versus mitigation is needed to direct public finance to areas where private capital is constrained by limited commercial viability, alongside developing a National Financial Model that internalises climate externalities and expands the scope of carbon markets in India.

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