Sustainable finance for a just transition in India: the role of investors

This report focuses on the increasing role that institutional investors will play in advancing the just transition in India, given the vast capital they can bring to bear and attractiveness of the Indian economy to foreign portfolio investments. The authors identify levers for investors to develop real-world practice, build confidence, and lay the foundations for broad-based adoption in ways that support national priorities. They also outline the just transition challenge and risk facing India, examples of building momentum for action, and the need to attract more international capital.

Key messages

Opportunities and challenges from greening India’s economy

• Building a net zero and climate-resilient economy represents a strategic opportunity for India to deliver inclusive growth and make the country a green jobs superpower. However, there is a need to understand and act upon the potentially profound socioeconomic consequences of the transition.
• While there is considerable scope for more and better jobs from building a net zero economy, there is also a risk of stranded assets and people in high-carbon sectors such as coal, and of a narrow greening of the economy that does not take people into account.
• To secure positive results, an unprecedented volume of capital, both public and private, must be mobilised, from domestic sources and internationally. This is the challenge of financing the just transition, a global imperative that is of particular importance to India given its large workforce in threatened sectors and its vulnerability to climate change impacts.

Plugging the finance gap for India’s just transition

• The just transition is becoming increasingly embedded in India’s climate policy framework and initial action to make it come alive is underway at the state level, among companies and within civil society.
• The financial dimension requires particular attention as domestic fiscal and capital resources are currently insufficient to deliver the scale of investment required: India holds just 1% of assets in the global financial system. Estimates suggest that India needs approximately US$200 billion annually in investments up to 2030; in 2023 India had clean tech investments of only US$31.4 billion.
• The task is to move from a purely environmental approach to sustainable finance to one that addresses core social priorities for India’s citizens in terms of creating decent work and livelihoods (including through skills development), ensuring access, availability and affordability of essential goods, respecting human rights and empowering communities (especially women), enabling their active participation in the transition process.
• Within India’s financial system, there is an important role for institutional investors to support a just transition to net zero by ensuring that it is incorporated across investment strategy, shareholder engagement, capital allocation, policy dialogue and investors’ own reporting.

Three levers for investors

The authors have identified three promising levers for investors to lay the foundations for broad-based adoption in ways that support national priorities:

1. Encourage companies to use the Indian Business Responsibility and Sustainability Reporting disclosure regime as a homegrown framework for reporting on just transition.
2. Promote capital allocation towards the just transition by harnessing India’s green, social, sustainable and sustainability linked bond market.
3. Support the integration of just transition principles into transition plans and transition finance.