Green-shaming developing nations won’t work

The Council for Environment, Energy and Water - Centre for Energy Finance (CEEW-CEF) recently released an independent study summarising that “India would need cumulative investments of $10.1 trillion to achieve net-zero emissions by 2070 and could face a significant investment shortfall of $3.5 trillion”.

At the recently concluded COP26 Glasgow summit, India’s strong push to certain clauses evoked surprise. For a nation that has nearly 1/6th global population, majority of them being younger than 30 years of age with another 35 years of productive life ahead, India has a lot riding on every word of the agreement. As its representative at the summit, Union Minister Bhupendra Yadav said, developing nations had the right to use the remainder of the so-called global "carbon budget", or the amount of carbon dioxide the world can release before warming crosses the 1.5 degree celsius goal. He pointed out, “In such a situation, how can anyone expect that developing countries can make promises about phasing out coal and fossil fuel subsidies when developing counties have still to deal with their development agendas and poverty eradication?"

For many of the developed nations with a fraction of India’s population who expressed dismay or negative rhetoric, here is a thought: All these decades, developed nations used fossil-fuels for their industrial development and consequent socio-economic progress. Once they developed economic strength to move to sustainable way of living and other good ways of growing their society, it was easy to “preach” the “good ways” to those who are developing their economies, especially when they have to lift a large section of the population for whom the only thing free in their lives is the air—and not necessarily clean air at that!

Climate Financing

While it is necessary to move away from fossil fuels, developing nations do not have the economic-might to take up non-fossil fuels and associated technological changes at once. They will need financial support to adopt to newer ways of sustainable economic activities.

Sustainability is a holistic approach that considers ecological, social and economic dimensions, recognising that all must be considered together to find lasting prosperity. The key aspect of economic dimension, which is funding the change from the processes of the present economic activities to a better sustainable way, is the crux.

Every climate action initiative has financial implications. Estimated trillions of dollars are required to fund climate change actions to meet targets. Funding this has not been as easy. The developed countries have not met their promise to mobilise at least $100 billion every year from 2020; and they now have shifted the responsibility start-date to 2023. If the goal-post keeps changing, what happens to the goal?

Less than 1/5th of that commitment was raised by 2020, of which hardly a few tens of millions of dollars came to India as direct financing (grants not included).

Needless to say, a nation cannot build its growth strategy depending on the goodness of those who have developed economies. India has to work to fast-track climate change bonds, sovereign green bonds and sustainability-based global equity investments into the Indian productive sector. The GIFT City could play a pivotal role in spearheading this green-financing ability. IFSCA has already initiated beneficial tax regulations for green-financing.

If they can enhance their global investor outreach programme like a private firm would do, in pulling out all stops to discover investors’ interests and understand their concerns about Indian markets / regulations / past-experience, it will fast-track the regulatory ability to launch newer product categories. As a domestic market with shallow debt market, we have borne the brunt of volatility &/ credit-hesitation. This has to change for the economic journey we are enroute.

Banking on Green

Coal currently powers 70% of India’s electricity generation. At the COP26 session, Prime Minister Narendra Modi has pledged that by 2030, India will produce more energy through solar and other renewables than its entire grid now. This opens up a huge set of opportunities in the renewables space and its impact-sectors.

In this aspect, India will also need to move quickly on its policies around state power-generation entities. Most of them are already broken, and need fixing, not just band-aiding. This is that time when political will and Centre-state agreement can make a positive difference.

It is a no-brainer expectation that India would address regulatory hurdles and send strong policy impetus for investments in low-carbon sectors, sustainable living solutions and overall social-good economic activities. Looking at the past few years of strong political capital, firmness of political will towards stronger structural reforms and policy push, this should move ahead well.

Early 2021, the RBI joined the ‘Network for Greening of the Financial Systems’, a group of central banks working in developing financing to help the transition to renewable energy projects and sustainable businesses. Of course, the banks in the country will need to showcase their speed in financing sustainability, and keep up with the initiatives of the RBI.

Banks have not been quick so far in their efforts towards green financing in general. Their approach towards traditional lending and move towards assessing sustainable businesses needs pace and quick wins. They have to understand that green financing is not an affirmative action anymore, and is a business opportunity.

Only hero is a better-world

While climate change seems to be a political and policy issue on the outside, it is deep down that which would impact how businesses function.

For years, developed nations had continued using (or abusing) the goodness of what nature was providing as its resources, and can’t ask others to stop using any of these resources without paying for the differential costs to achieve the same level of developmental gains they had to reach “developed nation” status.

Trying to green-shame the developing nations won’t work well. It’s time to vet the zeroes in the climate financing achievements of the developed nations, while we prep for the Net-Zero!

Views expressed are personal. Srinath Sridharan is Corporate Advisor & Independent markets commentator. Subrato Basu is Advisor to Fortune 500 companies & Business Transformation coach.