Financing India’s decarbonisation ambition

This is a joint opinion piece by Mike Bloomberg, N Chandrasekaran, and Shemara Wikramanayake, originally published in The Economic Times of India.

4 December 2023

As the UN’s COP28 climate conference convenes in Dubai, no nation epitomises the many challenges and opportunities of climate change more than India – a fast-growing country rich in clean energy resources that is also highly vulnerable to the effects of climate change. India has the chance to show the world how nations can build a more prosperous, resilient, and healthy future while reducing emissions. That goal is attainable, but achieving it hinges on greater levels of collaboration across the public and private sectors.

India has already demonstrated a high level of ambition and accomplishment on climate change. Progress is being made towards the goal Prime Minister Modi announced two years ago: reaching 50 per cent clean energy by 2030. That’s partly the result of government policies that have reduced the cost of capital for renewable energy, driven demand for electric vehicles (EVs) – from two wheelers to buses – and made India a top-ranked opportunity for clean energy investment.

EVs are a key part of India’s ambitious plan of decarbonising transportation. EVs’ higher upfront cost and the limited availability of financing at competitive rates is slowing the pace of electrification. Installations of EV charging stations also need to accelerate.

Conservation of resources – including water – will also be essential to India’s sustainable development, as its population and economy continue growing and the climate continues to change. The government has emphasised this by placing a high priority on building a ‘circular economy’ – but more private investment is needed to make that vision a reality.

Meanwhile, India’s heavy industries – like steel, aluminium and cement – are positioning India as a new industrial power. India can help lead the transition to low-carbon industrial development with less carbon-intensive industrial technologies. However, securing India’s position at the forefront of tomorrow’s low-carbon supply chains requires more investment in promising climate technologies like green hydrogen. While the government has set ambitious goals for green hydrogen, greater collaboration with the private sector and multilateral finance institutions is needed to scale such innovations in an affordable way.

The good news is that all these challenges are addressable, if we unleash the power of private capital. Two years since its launch, a collaborative effort called the Climate Finance Leadership Initiative (CFLI) India is showing how to overcome barriers and providing lessons that countries across the Global South can learn from in their own efforts to attract more private capital to climate projects.

Launched with the support of the Indian Government, CFLI India brings together financial institutions, businesses, government agencies and multilateral lenders. The goal is to drive more financing to climate innovations where the path to commercial viability is still nascent. It is guided by a simple overarching idea: the more the public and private sectors work together, the more progress can be made.

As part of CFLI India, for instance, Macquarie is working with the United Nations Green Climate Fund to create a new platform to provide a fleet electrification solution to businesses in India. The partnership is designed to overcome challenges related to EV adoption. The platform will use $US200 million of public capital to unlock the same from private institutional investors, and over time mobilise a total of $US1.5 billion of capital.

Macquarie is leading the development of a new blended finance platform, with the UN’s Green Climate Fund (GCF), to drive the adoption of electric vehicles (EVs) across India, helping reduce the country’s CO2 emissions and improve urban air quality.

CFLI India is also supporting an effort by Tata Motors and its partners – the State Bank of India, HSBC, HDFC and Tata Capital – to allow customers to spread higher upfront costs of EVs over a longer timeframe and lower interest rates enabled by warranties.

Access to credit is a major obstacle for cities seeking to invest in sustainable infrastructure, including water. To increase their access to private commercial financing, CFLI India, Tata Group, Larsen & Toubro, and Kotak Mahindra Bank have originated innovative financing structures such as setting up partial risk guarantee funds under central governments, and developing state-level pooled funds that can be used by municipalities to finance and enable Public-Private Partnerships (PPPs) water projects.

CFLI India is also supporting India’s National Green Hydrogen Mission. Financing from CFLI India Member GIC Private Limited will support the production of 5 million tonnes per annum of green ammonia by 2030. This investment will help establish the credibility of this industry and attract further investments.

Together these collaborations can drive over $US6.5 billion to climate solutions in India, with the ability to be scaled up across the country and replicated in others, creating a blueprint for stronger public-private collaboration.

There have been promising global discussions on how to reform multilateral lending but more progress is needed turning ideas into investments. B20, the business community's partnership with G20 nations, highlighted the opportunity that exists in India for multilaterals to support energy transitions and drive investments by mobilising private capital.

India has every incentive to lead the way forward, and as one of the world’s most dynamic, innovative, and fast-growing economies, it has the tools necessary to do so. CFLI India’s collaborative approach between private and public can help put them to full use.

Mike Bloomberg
UN Special Envoy on Climate Ambition and Solutions, and Chair of CFLI

N Chandrasekaran
Chairman of the Board of Tata Sons, and co-chair of CFLI India

Shemara Wikramanayake
Managing Director and Chief Executive Officer, Macquarie Group, and co-chair of CFLI India