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Green Financing Framework

 

Green Financing Framework: Relevance

  • GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

 

Green Financing Framework: Context

  • Recently, economic survey 2021-22 has proposed a mechanism to boost green financing in India, given that India is part of global sustainable finance initiatives.

 

Green Financing Framework: Key points

  • The Survey has also emphasised on regulatory initiatives of the finance ministry and that of the Reserve Bank of India (RBI).
  • Green finance is emerging as a public policy priority for the government and the central bank.
  • Green financing implies the financial arrangements that are specific to the use for environmentally sustainable projects.
  • Green financing examples: clean energy projects, clean transportation that involves lower greenhouse gas emissions, energy-efficient projects like green building and waste management that includes recycling, efficient disposal and conversion to energy.
  • Economic Survey has emphasised that climate change-related financial risks pose both micro and macro-prudential concerns.
  • New financial instruments such as green bonds, carbon market instruments, and new financial institutions are being established to meet the financial needs of these types of projects.
  • For this reason, RBI had set up a new unit called ‘sustainable finance group’ within its department of regulation to effectively counter these risks and to lead the regulatory initiatives in the areas of sustainable finance and climate risk.

 

Green Financing Framework_40.1

 

Sustainable finance group

  • This group coordinates with and participates in issues relating to sustainable finance or climate risk with the international standard-setting bodies, other central banks, other financial sector regulators, and the government.
  • The group would also suggest strategies and evolve a regulatory framework, including appropriate climate-related disclosures for banks and other regulated entities to propagate sustainable practices and mitigate climate-related risks in India.

 

Green Financing Framework_50.1

 

What are green financing instruments?

  • Green finance refers to any financial instruments whose proceeds are used for sustainable development projects, environmental products and policies to promote a green economic transformation toward low-carbon, sustainable and inclusive pathways.

 

What is the difference between sustainable finance and green finance?

  • Climate finance provides funds for addressing climate change adaptation and mitigation, green finance has a broader scope as it also covers other environmental goals, while sustainable finance extends its domain to environmental, social and governance factors (ESG).

 

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