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India: ESG finance: Where to find the money?

10 March 2023
Gautam Khurana


India is committed to cutting carbon emissions and reaching net-zero by 2070. While this target is still far away, a more immediate government target is cutting carbon emissions by 45% from 2005 levels and generating 50% of all power from non-fossil fuels by 2030. This is a challenging target that the government is determined to achieve.

Switching from older, inefficient energy sources to green sources such as solar, hydro, wind, green carbon and gas-based energy requires substantial capital investment. The developed world is already greatly committed to financing this change.

Emphasising environmental, social and governance (ESG) factors in the economy will transform the world. India needs to progress in this area if it wishes to transform from a developing economy to developed nation status, a goal that the government wishes to achieve by 2047. Sustainability, ESG, and the green economy are terms often used interchangeably. Although this may be misleading, as interest is focused mostly on the climate aspect, the social and governance elements of ESG are as important as the environment in everyday business activities.

The social responsibility aspect, the S of ESG, for businesses includes diversity, equity, and inclusion, while governance, the G, remains the cornerstone and the most cohesive element for the proper execution and application of ESG standards.

ESG is bound up with financing. In 2019, BlackRock’s CEO Larry Fink sent a letter to the CEOs of the company’s subsidiaries headed Purpose and Profit: An Inextricable Link. Stewardship in investing became a priority, and the CEOs were urged to focus on this during day-to-day operations. Today, ESG frameworks are firmly embedded in the planning of many companies. Four years and a pandemic later, investing in a sustainable future is increasingly important for all actors in the business ecosystem, particularly investors and companies. Risk assessment and analysis drive better sustainability practices and ESG metrics support the decisions investors and companies make.

It is clear that ESG financing is not a destination or a function, but a process to be followed if investment is to continue in the future. According to guidance documents from the Asian Development Bank (ADB), the cost of capital will increase in inverse proportion to the ESG compliance and norms businesses follow. Business houses in India will need to display greater transparency in their ESG performance to secure financing at lower rates. A study from the ADB shows that the USA and the UK, not surprisingly, lead in ESG-related transparency norms and therefore raise finance at the most competitive rates. Even an economy like Japan is lagging and Indian companies need to catch up in the international race to secure ESG funds.

In a domestic context, the State Bank of India (SBI) released an ESG financing framework in January 2023. This formal approach shows the seriousness with which the banking system intends to take ESG financing. The SBI identified 10 eligible green project categories. These include clean transport, energy efficiency, green buildings and renewable energy. The framework set out eligibility for financing by how far projects adhered to six green factors, such as access to essential services, affordable housing and employment generation.

Although these ESG metrics, disclosures and scores may be confusing for some, the biggest fear for companies, investors and governments is being left behind in this movement. Climate-adaptive investments have priority for governments and investors alike and are driven by many initiatives and events, such as the finance industry’s Glasgow Financial Alliance for Net Zero and the United Nations’ COP 27.

The government recently announced plans to issue USD2 billion worth of sovereign green bonds for renewables, clean transportation, and water and waste management development. These bonds will fund infrastructure and meet the clean energy goals of the country.

Corporate ESG strategy, financing and investing must display greater transparency, stricter compliance with ESG requirements and clearer goals to be rated as environmentally friendly. Polluting industries will not be financed for much longer. ESG compliance will play a fundamental and increasing role in attracting capital and keeping the cost of financing as low as possible.


For further information, please contact:

Gautam Khurana , Managing Partner

India Law Offices, New Delhi 


t: +91 11 24622216


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