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Bridging India's sustainable finance gap
India’s net-zero goal hinges on sustainable finance growth, driven by policy and investment, but challenges demand systemic solutions.
In brief
- India's sustainable finance landscape is ripe with opportunity, backed by regulatory support.
- The EY Women in Sustainability ideation session on ‘Accelerating Sustainable Finance’ underscores critical funding hurdles in sustainable finance and explores viable solutions.
- Standardization of metrics, enhanced capacity and board engagement emerge as pivotal for advancing India's sustainable investment strategies.
India's commitment to achieving a sustainable economy has never been more robust, with the nation setting ambitious targets to reach net-zero emissions by 2070. This bold vision requires mobilizing a colossal investment of US$10 trillion, a feat that hinges on the evolution and expansion of the sustainable finance sector in India. As India forges ahead, it faces the dual challenge of aligning its financial sector with sustainability imperatives and maintaining economic growth.
Building on this vision, India’s climate finance landscape is evolving, requiring US$10.1 trillion by 2070 for achieving net-zero. With US$50 billion annually for climate mitigation, policy initiatives and a growing green bond market drive investments. India’s Viksit Bharat initiative accelerates sustainable finance in India, making it the second-largest funding hub for climate-related companies in 2024, surpassing China with US$5.1 billion in funding.
A key driver of this transformation is government's policy and regulatory support, which has been instrumental in propelling the growth of green finance investment. From the introduction of green credits reporting to the establishment of the ‘Task Force on Sustainable Finance’, these initiatives are crucial in driving the market towards ethical investments and sustainable practices.
Alongside policy efforts, several factors are fueling the growth of ESG financing in India. Investor demand, policy support, and the country's energy transition goals are creating a fertile ground for green finance investments. Notably, India's green bond market is attracting international attention, and the rise of green NBFCs and alternatives is providing innovative financing solutions for the 'missing middle'—companies that are ready to scale but require additional funding.
However, despite this momentum, sustainable finance in India faces challenges, including the need for standardized metrics and data, limited board buy-in, and a lack of capacity, particularly among MSMEs. Addressing these issues requires a multifaceted approach: creating shared data platforms, updating boards and shareholders on sustainability benefits, and conducting targeted training programs for MSMEs.
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How EY can help
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EY teams can help address ESG and sustainability issues, investor concerns and improve ESG performance. Find out how.
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EY combines deep technical skills across a breadth of business issues to deliver value-led sustainability. Explore our sustainability and ESG services.
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Supporting organizations with physical and transition risks associated with climate change, and assisting them with market and regulatory changes.
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Summary
The sustainable finance sector in India is on the cusp of a significant evolution, driven by the imperative to align financial flows with the country's green growth aspirations. As the market responds to the dual pressures of sustainability and economic development, the harmonization of metrics, the strengthening of institutional capacities, and the deepening of board-level commitment are emerging as the critical enablers of this transition. With concerted efforts in these areas, India is well-positioned to not only meet its sustainability commitments but also to set a benchmark for emerging economies worldwide.