1. INTRODUCTION:

Since the beginning of this universe, environment has played a very crucial role in the society. But with the advancements of human being, their activities have created lot of problems to the environment. Increasing use of fossil fuels has caused environmental degradation. Development is important but it should not be at the cost of environment. So with this came up the term ‘Sustainable Development’. Therefore to achieve sustainable development, it is necessary to switch from conventional source of energy to non-conventional source of energy. To accomplish this task and project, one needs funds and then there was the introduction of ‘Green Finance’. “Green finance is a broad term that can refer to financial investments flowing into sustainable development projects and initiatives, environmental products, and policies that encourage the development of a more sustainable economy.”

Green Finance:

Globally, Green Finance is growing at a very high pace and will continue to develop. According to Climate Policy Initiative, approximately $360 billion is being invested annually in public and private client investment. In India, Climate Policy Initiative is led by Druba Purkavastha. The policy focuses on developing innovative strategies to support renewable energy and Green Projects. Worldwide Green Finance has grown enormously. According to CPI report “The Green Bond market has grown to over $100 billion of bonds issued annually. Countries are beginning to issue sovereign green bonds, with the first issued by Poland in 2016 and subsequently followed by France, Fiji, Nigeria, Indonesia and Belgium. The largest of $7 billion was issued by France. Global sustainably managed assets under management increased by 25% from 2014 to 2016. 92% of the world’s largest banks are members of the UNEP Finance Initiative. Investment in the UK’s clean energy sector has exceeded £100 billion since 2004. 121 UK energy projects have been funded via crowd funding, raising €118 million in total. The UK Green Investment Bank has backed 98 green infrastructure projects, committing £3.4 billion to the UK’s green economy.” Despite these investments there is an investment gap to support low-carbon world and there is a long way to go to achieve sustainable development through Green finance.

Sustainable Finance:

Often synonymously, Green Finance and Sustainable Finance is been used. But there lies a difference between the two. As Green finance is a two-way interaction between environment and finance, many terms are related which includes Environmental, Social and Governance (ESG), Climate Finance and Sustainable Finance.

If we broadly see, there are various issues in the society in terms of sustainable development. Firstly, environmental issues are there which include issues related to biodiversity loss, green house gas emissions, renewable energy, pollution, ozone depletion etc. Secondly, social issues are there, which include issues related to human rights, health and safety, consumer protection and many more. Third issue is the economic issues, which relates to economic conditions at local level, national or global levels. And lastly governance issues, which includes shareholders right, business ethics, bribery, corruption etc. Hence, all these issues collectively are related to ‘sustainable finance’ whereas if one focuses only on environmental issues, then it is more likely to be termed ‘green finance’.

2. LITERATURE REVIEW:

Many studies have been conducted on sustainable development but very few studies highlight the points to support sustainable development goals through green finance. Here are few studies which focus on financial support to SDGs. Soppe, A. (2006) analyzed that institutional investors in Netherlands invest a small part of portfolio in sustainable companies. These investments are in the form of long-term financial policies. Financial markets show a high interest in Socially Responsible Investments (SRI) and Sustainable Corporate Responsibility (SCR). Even in China, green financing is growing at a high pace. Bai, Y. (2011) examined the role of Chinese banks in Green Financing, regulations related to Green Finance, progress and challenges in compliance with Green Credit Policy and the efforts made by stakeholders to contribute in Green Finance. The main aim of the study was to analyze the incorporation of environment principles into financing activities and to see how Green Finance is developing in China.

As green finance was gaining popularity, researchers started studying and discussing about green finance. Chowdhury, T., Datta, R., and Mohajan, H. (2013) discussed about green finance. The study explained that green finance is essential for economic development and sustainability. They suggested investing in renewable energy projects so that we can keep healthy environment.

Not only in India, but many countries were focusing on green finance. Pedersen, S. M., and Slette, S. B. (2016) “did an exploratory case study within the context of Norwegian industry development in the transition to a green economy. More specifically, the study investigates how a Norwegian Green Investment Bank (GIB) could incorporate sustainability in investment decisions with the mission to facilitate a transition to business models that are more sustainable. Further, the researcher described and discussed the financial characteristics of business model innovation, communication and financial evaluation methods. Findings showed that since business actors hold the power to innovate and upscale business models for sustainability, they also have a responsibility to incorporate ESG values in their strategies.” Cui, Y. (2017) analyzed the china’s banking system. As Green Finance is rapidly growing in China as well, the researcher studied about the China Green Credit Policy. The study also discussed that green loans provide better risk management and more business opportunities. Moreover, researcher identifies that government of China has a major role and involvement in the development of Green finance.

Reddy, A. S. B. (2018) discussed the concept of Green Finance and why it’s need. The study explained that though government has taken various steps towards sustainable development through green finance but private investors are lacking in this field. Therefore, researcher gave suggestions to the private investors about their role in sustainability. Jha, B., and Bakhshi, P. (2019) discussed the initiatives taken by the government and suggested to make a clear green investment strategy. The policy should be transparent and encouraging for the investors. India should also focus on foreign investors so that one can contribute more towards sustainable development.

Research Gap:

From the above literature review we can conclude that many studies have discussed about Green Finance. But major studies have been done internationally. Countries like China, Netherlands, Norway has already implemented many policies and products of green finance and they are creating awareness among the investors towards sustainable development. Similarly, India has also started focusing on Green Finance and studies showed that various researchers explained the concept of green finance and initiatives taken by the government. But there is a need to identify the different types of Green Financial Products available in India, so that investors can invest towards these products. Moreover when any concept is introduced, there exist some challenges as well. Hence, the present paper will discuss about the challenges to Green Financing. The study would also analyze the different policies in Green finance and what initiatives government is taking for the Green finance in India.

3. OBJECTIVES OF THE STUDY:

· To study the different types of Green Financial Products

· To examine the challenges to Green Financing

· To analyze the policies and initiatives in Green Finance

4. METHODOLOGY:

The current study has focused on Green Finance, an approach towards sustainable development. The study aims to identify different types of Green Financial Products in India and what are the challenges to Green Financing. The study also focuses on analyzing the policies in Green Finance. Hence, the present study is descriptive and analytical in nature. The sources of data collection are secondary based. Data has been extracted from various books, journals, articles and different websites.

5. ANALYSIS AND INTERPRETATION:

A. Types of Green Financial Products:

Green Finance market includes financial products that can manage pollution, apprehend the ecosystem and help the environment to uphold in the economy. There are various types of financial products available like environmental funds and biodiversity funds, green investment funds, nature-linked securities etc.

· Environmental Funds: These are specific types of funds, which invest in environment friendly companies or have a goal of better environment like operating in waste management, carbon emission or alternative energy. There are various funds available in India like; Clean Technology Fund supporting India’s Electric Mobility Program, Pilot Program for Climate Resilience strengthening Climate Resilience of Women Engaged in Poultry and Clean Technology Fund supporting India’s Offshore Wind Sector.

· Biodiversity Funds: These funds help in maintain ecosystem function and increase ecosystem resilience to climate change. Moreover, it also helps in improving and increasing the management of bio-diverse carbon stores across the country. To conserve the rich natural heritage of India as per the National Biodiversity Act 2002, National Biodiversity Authority (NBA) provides financial support in form of grants or short-term funds to protect the biological diversity, endangered species of wild Fauna and Flora.

· Green Investment Funds: Green investing began in the early 1990’s after environmental disasters like Exxon Valdez oil spill. Therefore, Green Funds were introduced and these are mutual funds that will invest in companies that promote socially and environmentally policies and business practices. Some of the Green Funds in India are; Tata Resources and Energy Fund, DSP Natural Resources and New Energy Fund.

· Nature-linked Securities: “Nature-linked Securities can transfer the risk of natural disasters and climate change to investors in global capital market. The sponsors of the natural disaster securities generally set up a special purpose vehicle (SPV) and then issue debt securities. SPV and the sponsors follow that SPV agrees to pay compensation to sponsors in the event of natural disasters on condition that the sponsors must pay a certain amount of insurance fee to SPV regularly.”

· Debt-for-nature Swap: These are the financial transactions in which “a portion of a developing nation’s foreign debt is forgiven in exchange for local investments in environmental conservation measures”. Since 1980’s, organizations like WWF (World Wildlife Fund) and The Nature Conservancy have participated in international debt-for- nature swaps. This is one of the great options which India could also adopt for their debts.

· Green Bonds: Green Bonds are also known as Climate Bonds which was first issued in 2009 by the World Bank. “A Green Bond is a fixed-income instrument designed specifically to support specific climate-related or environmental projects.” In 2019, approximately worth $157 billion green bonds were issued. Few Indian banks have also issued green bonds in the international market like State Bank of India, Yes Bank, Axis Bank and EXIM Bank.

B. Challenges to Green Financing:

In India, Green Finance is at rising stage but still it has not been able to attract various investors. Investors prefer to invest in highly rated bonds. Due to high cost of debt capital, the investments in green projects are very expensive and this results to high rate of interest and short maturity period. Even the investors are less aware about the innovative financial instruments available in the market. Moreover, several risks are also associated with green financing like risk related to technology, currency risk and many more. Hence, green financing is at an emerging phase but still it faces lot many challenges.

· Lack of Clarity about Green finance: Investors are lacking awareness as well as clarity about various green financial products available in the market. There are various green bonds, green loans and green insurance available but due to lack of clarity, it creates obstacle for the investors.

· Inadequate Analytical Capabilities: To mobilize funds for green financing, it is necessary to study the environmental risks effectively. Banks and investors still need to develop the ability to identify and measure the credit and market risk associated with green projects. Due to this, there are many projects like pollution projects, greenhouse gas emission projects which lack investments.

· External Factors: There are various external factors which impacts the green financing like there is an inadequate compensation for positive externalities of green projects and insufficient penalties for negative externalities. Moreover, there exist contaminated projects and insufficient price signals.

C. Policies and Initiatives in Green Finance:

According to CPI (June 2020) report, “India is ranked the fifth most vulnerable nation to the effects of climate change with 2.5- 4.5% of its GDP at risk annually. As a result, India has pledged to reduce the carbon intensity of its GDP by 33-35% by 2030 from its 2005 levels, but to achieve this target, India needs to mobilize a total of $2.5 trillion over 2016-30. Strong financial support and timely policy interventions from the Government of India have played a crucial role in accelerating the growth of the country’s renewable energy sector. But given current rates of penetration and the overall health of the sector combined with slowdown created by the COVID- 19 pandemic, the government will have to find new and alternative ways to finance the transition and incentivize private sector participation to scale up investments for a sustainable and transformational impact. International finance is also likely to come with green strings attached. Therefore, identifying and analyzing key sources of finance, the instruments used for mobilizing and disbursing funds, and their ultimate beneficiaries become critical for diagnosis, planning and monitoring green investments in the country”.

Indian financial institutions have begun aligning themselves with global initiatives, but it is limited to a few institutions. For instance, Yes Bank is the only commercial bank from India which is a signatory to the Principles for Responsible Banking (PRB) and is a member of UN Environment Finance Initiative (UNEP FI). The Insurance Institute of India (insurance education and training provider) is the only institute that is a signatory of the Principles for Sustainable Insurance (PSI). And only four asset managers/investment services providers from India are signatories of the Principles for Responsible Investment (PRI). Indian Banking Association (an association of banks) is a member of the Sustainable Banking Network (SBN), and the Small Industries Development Bank of India (SIDBI) is a member of the International Development Finance Club (IDFC). There is no representation from India at the Network for Greening the Financial System (NGFS), which is considered a powerful network of banking regulators in Green Finance. India is a member of the International Platform on Sustainable Finance (IPSF), which started in 2019, but this initiative has made little progress. There are no national collaborations or industry association led initiatives that have started on Green Finance either. Financial markets, banks, and rating agencies are also not considering green elements/factors in their decision making. The lack of integrated focus on Green Finance, indifferent financial regulations, and inadequate institutional mechanism on Green Finance is limiting the growth of the sector. And there is a growing need to sensitize India’s financial sector about the importance of Green Finance and the need for accelerating capital through sustained marketed collaborative actions and regulatory interventions.

6. CONCLUSION:

Green Finance is a way to support Sustainable Development Goals (SDGs). There are wide range of financial products and services like green bonds, green investments and environmental and biodiversity funds which helps to protect and manage the environmental issues. Green Finance can manage SDGs in number of ways like by providing long-term loans for renewable energy projects, green mortgages which link repayments to home energy efficiency and even by providing capital for innovative technologies. Despite of rapid growth of green finance in the economy, there is still an investment gap to support SDGs. There are various challenges to green finance like external factors, lack of clarity to investors about green finance, knowledge about the financial products available in the market and lack of inadequate analytical capabilities.

But in present times, government is taking lot many initiatives to support green finance and policies are been framed in terms of green finance. According to Climate Policy Initiative 2020 report, India has pledged to reduce the carbon intensity of its GDP by 33-35% by 2030. Moreover, Indian financial institutions have also begun aligning themselves with global initiatives which will definitely support SDGs.

7. REFERENCES:

1. Bai, Y. Financing a Green Future: An examination of China’s banking sector for green finance. IIIEE Master Thesis. 2011

2. Brief, C. D. Accelerating Green Finance in India: Definitions and Beyond. 2020

3. Chowdhury, T., Datta, R., and Mohajan, H. Green finance is essential for economic development and Sustainability. 2013

4. Cui, Y. Analyzing green finance incentives: an empirical study of the Chinese banking sector (Master's thesis, University of Waterloo). 2017

5. Jha, B., and Bakhshi, P. Green finance: Fostering sustainable development in India. International Journal of Recent Technology and Engineering; 2019. 8 (4), 3798-3801.

6. Pedersen, S. M., and Slette, S. B. Financing the Transition to a Green Economy-An empirical investigation of how Norwegian firms can achieve business models for sustainability (Master's thesis, NTNU). 2016

7. Reddy, A. S. B. Green Finance-Financial Support for Sustainable Development. International Journal of Pure and Applied Mathematics, 2018. 118(20), 645-652.

8. Soppe, A. Finance as an instrument to a sustainable company. 2006 https://www.climatepolicyinitiative.org/publication/landscape-of-green-finance/ https://www.financialexpress.com/industry/banking-finance/policy-action-needed-to-boost- green-financing-rbi/1803532/

9. https://www.climatepolicyinitiative.org/the-regions/india/

Received on 11.09.2021 Modified on 20.11.2021

Asian Journal of Management. 2022;13(1):17-20.

DOI: 10.52711/2321-5763.2022.00004