The development of green financing faces many challenges including false compliance claims, non-standard definitions of what constitutes green loans, and maturity mismatches between long-term green investment and relatively short-term interests of investors, the RBI said.
The Reserve Bank of India said that “policy action is needed” to set up an enabling framework to promote green financing in India. The development of green financing—funding of environment-friendly sustainable development— faces many challenges including false compliance claims, non-standard definitions of what constitutes green loans, and maturity mismatches between long-term green investment and relatively short-term interests of investors, the RBI said in its report.
“Deepening of corporate bond market, standardisation of green investment terminology, consistent corporate reporting, and removing information asymmetry between investors and recipients can make a significant contribution in addressing some of the shortcomings of the green finance market,” RBI said.
India’s green bond issuance stood at around $7.7 billion during 2012-2018, making it the second largest issuer of green bonds within emerging markets in that period, according to RBI’s Report on Trend and Progress of Banking in India 2018-19.
However, India’s green bond issuance lags far behind that of China, which issued bonds worth over $108 billion during 2012-18. Preliminary estimates conducted for the Paris Agreement, signed by 195 countries to combat climate change, indicated that India requires massive funding of around $2.5 trillion to meet climate change actions between 2015 and 2030.
The central bank said as public funding alone cannot finance the necessary transformation required to address climate change, green finance is required to be harnessed for financing environment-friendly sustainable development.
In 2015, RBI had included lending to small renewable energy projects and social infrastructure projects within its priority sector lending targets.
The market for green bonds has issuers from more than 50 countries, including multilateral institutions like the World Bank. Total green bond issuance between 2007 and 2018 stood at $521 billion.