Climate change may very well be the biggest challenge of this century, affecting our economies, households, and geopolitics. Yet, akin to a technological disruption (or innovation), it possesses the power to pave way for a new growth paradigm. Underlining this paradigm shift, a whopping $3.1 trillion climate investment opportunity is present before India this decade. Despite the alluring number, climate investments in India have remained far below potential, accounting for less than 15% of the projected investment requirement.
The private sector is due to play a pivotal role in scaling up climate investment and driving innovative climate-informed business models. Indian businesses are starting to recognize the need to integrate climate and become ‘future-proof’. As of the first quarter of 2022, 68 Indian companies had committed to set science-based targets, aligned with the Paris agreement. In parallel, 24 key industry champions, including TATA, Reliance, the Adani group, Mahindra, Sun pharma, Dr. Reddy’s etc, have signed The Declaration of the Private Sector on Climate Change with Ministry of Forest, Environment and Climate Change. While this is a good starting point, climate action is yet to be mainstreamed in business operations and strategic planning processes.
Increased private sector participation has been impeded by several barriers. While some barriers are common across industry groups, such as the lack of uniform definitions for ‘green’ activities and low technical expertise, others are largely sector specific. Technological barriers such as high patent costs also make technology deployment unviable, while patent fencing restricts indigenous research. High technological costs and limited access to critical materials also reflect in a size bias, wherein the biggest proportion of private sector investments have been driven by large Indian corporates and businesses.
The answer does not lie in a one-size-fits-all approach, but rather with nuanced, sector-specific strategic interventions and innovation models. Take for instance, India’s renewable trajectory. Climate investment flows have largely been concentrated within renewable energy, energy efficiency and electric mobility, with renewables claiming the biggest chunk. The reason lies in a series of policy interventions and supply-side incentives. A clear target and commitment at the highest level set the precedence for boosting renewable installed capacity, with supporting fiscal and financial incentives. This included generation-based incentives, accelerated depreciation and introduction of feed-in tariffs. The National Solar Mission (NSM) oversaw the transition from feed-in tariffs to competitive bidding, achieving cost-parity with coal power generation. The focus is now shifting to round-the-clock clean energy provisioning and incentivisation. As a result, Indian companies are venturing into new age solar-wind-battery hybrid renewable energy systems that boast of providing round the clock power at 75-80% plant load factor. As the market evolved, we saw emergence of renewables-focused companies through 2007 to 2020 such as Gita renewable energy, ReNew Power and renewable divisions of leading power producing companies such as TATA power, Adani power, Reliance, JSW energy, among others.
Reaching critical mass
While there is much left to be done to reach India’s 2030 non-fossil fuel target, it is pertinent to learn from our past efforts and adapt to the evolving ecosystem. Within clean energy, there is a need to facilitate demand creation mechanisms and address payment risks. At the same time, electric vehicles, green buildings, transport infrastructure, waste and water management along with agriculture, all offer potential market opportunities in India’s low-carbon transition,
that are yet to be capitalized. Investor confidence should be established through sectoral roadmaps, indicating a long-term vision for private investors and businesses.
As the direction of travel is more firmly established, inclusion of MSME sector would be crucial in driving the transition on-ground. Representing approximately 30% of Indian GDP, Indian MSMEs often lack the technical knowledge, upfront capital and credit scores to drive long-term climate investments within their existing business models. Targeted regional schemes, credit enhancement and training programs could be facilitated through public-private partnerships and development institutes such as SIDBI. Additionally, industry associations and large corporates could drive engagement programs and co-create green business models with their value-chain partners to increase MSME participation.
The International Energy Association (IEA) estimates that India requires US$1.4 trillion over the next two decades in financing green energy technologies alone. To put this in context, India’s GDP in FY2021 is US$2.7 trillion. Hence, Indian NetZero development trajectory cannot be achieved only by mobilizing domestic capital market alone. Leveraging foreign capital markets at the back of sectoral indications through increased transparency and disclosure on environment, social and governance related parameters could bring the scale of investment required. This could be complemented by targeted interventions on deepening of domestic debt markets. Finally, clarity on green investments through taxonomy and integrated climate-risk management frameworks could further stimulate investor interest.
Through this all, the private sector cannot remain in the backseat. Industry and investor engagement with state actors could help co-create India’s transition pathway, refining policy and incentive design. A promising development is the formation of the India chapter of the Alliance of CEO Climate Action Leaders – a global initiative launched by the World Economic Forum which attempts to bring together government and industry stakeholders to accelerate the net-zero transition. Not only could this expedite India’s decarbonization efforts, but it could also provide first-mover advantage to participating organisations.
The race to net-zero is no longer just an environmental issue. It is also a geopolitical and economical issue. The time is ripe for India to drive its low-carbon transition and position itself in the climate-integrated market – will India’s private sector call shotgun?
‘The views of the authors’ are personal and do not necessarily reflect the views of Shakti Sustainable Energy Foundation.’
 Climate Investment opportunities in South Asia. An IFC analysis. (2017). IFC.