India Must Triple Green Investments to Meet $2.5 Trillion Climate Target: Report

As the clock ticks on the global race to combat climate change, India finds itself at pivotal crossroads, needing to triple its green investments to meet ambitious climate targets and safeguard its future. 

According to a recent Climate Policy Initiative (CPI) report, India must significantly ramp up its green investments—tripling current levels—to achieve its climate targets and commitments under the Paris Agreement. The report, The Landscape of Green Finance in India, highlights the country’s progress in green financing while stressing the need for greater investments to bridge existing gaps. 

Current Green Investment Levels

The CPI report estimates that India attracted Rs 425,300 crore ($65 billion) annually in green finance during 2021-22, marking a 20% increase compared to 2019-20. This includes Rs 371,200 crore ($50 billion) for mitigation activities such as clean energy and energy efficiency. Adaptation-related sectors saw investments nearly triple over the same period, reaching Rs 1,09,200 crore ($15 billion) annually.

Despite these advances, the report emphasizes that India must scale up investments to Rs 1,100,000 crore ($170 billion) annually to meet its Nationally Determined Contributions (NDCs). The Indian government estimates that achieving these NDCs—designed to limit global temperature rise to 1.5°C and adapt to climate change impacts—will require Rs 16,250,000 crore ($2.5 trillion) by 2030.

Sources of Green Finance

India’s green finance is predominantly domestically sourced, with 83% of mitigation-related funds originating within the country. Of this, the private sector contributed 66%, demonstrating its pivotal role in driving India’s green transition. International finance for mitigation has also grown, rising from 15% in 2019-20 to 17% in 2021-22. Notably, private sector contributions to international mitigation flows surged to 66%, up from 40% two years earlier.

Adaptation financing, however, remains heavily reliant on public funds, with 98% sourced domestically through central and state government budgets in 2021-22. The contribution of private finance to adaptation activities, particularly in agriculture, remains negligible, accounting for less than 1% of the total.

Sectoral Distribution of Green Finance

The clean energy sector continues to dominate India’s green finance landscape, attracting 47% of mitigation investments. Energy efficiency and clean transportation followed, receiving 35% and 18%, respectively. Together, these three sectors represent the bulk of India’s mitigation financing.

In adaptation financing, disaster risk management emerged as the top-funded area, capturing 42% of flows in 2021-22. This sector experienced a ten-fold increase in funding compared to 2019-20, primarily due to higher government expenditures. Flood and cyclone mitigation activities and on-farm adaptation initiatives in agriculture accounted for 32% and 24% of adaptation funding, respectively. Within agriculture, crop insurance was the largest recipient, receiving 58% of funds, nearly all from public sources.

Challenges and the Road Ahead

While progress in green finance is evident, the report warns of significant challenges ahead. India’s cumulative adaptation-related investment needs are estimated at Rs 8,560,000 crore ($1 trillion) between 2015 and 2030, or Rs 5,733,000 crore ($67 billion) annually. With climate change expected to intensify, adaptation costs are likely to rise further.

Green finance for adaptation-related interventions has also increased by almost three times between 2019/20 and 2021/22.

Vivek Sen, Director of CPI India, emphasized the urgency of the situation, stating, “India’s green finance landscape has made significant progress, but there is a long road ahead. This report highlights critical areas where action is needed to scale investments and bridge existing gaps.”

International finance, though currently contributing a smaller share, is gaining traction. It grew by 19% in 2021-22 compared to 2019-20, with 92% coming from public sources. However, the CPI report calls for increased international support, particularly for adaptation projects, which remain underfunded compared to mitigation initiatives.

Need for Policy and Private Sector Involvement

The report underscores the importance of policy support and private sector involvement in bridging the green finance gap. While the private sector has been instrumental in funding mitigation activities, its role in adaptation financing remains limited. Addressing this imbalance will require innovative financing mechanisms, targeted policies, and enhanced public-private partnerships.

India’s journey toward its climate goals is marked by progress but also significant challenges. The country’s ability to scale up green investments, particularly in adaptation sectors, will be critical to meeting its climate targets under the Paris Agreement. With a clear roadmap and collaborative efforts from public, private, and international stakeholders, India can lead the way in sustainable development and climate resilience. As the world’s third-largest emitter of greenhouse gases, India’s actions will have a profound impact on global climate efforts.

References:

Climate Policy Initiative Launches the “Landscape of Green Finance in India” Report

Landscape of Green Finance in India 2024

Banner Images: Photo by Tom Swinnen