Climate finance is about India’s economic future

This article is authored by Kaviraj Singh, CEO, Earthood.

For years, climate finance has largely been viewed through the prism of environmental responsibility and international equity. Developed countries were expected to mobilise resources, while developing economies argued, quite rightly, that historical emitters must shoulder a greater share of the burden. That conversation remains relevant. But it is no longer enough.

Climate finance (Shutterstock)

Today, climate finance has evolved far beyond the confines of climate diplomacy. It has become a defining economic issue that will influence industrial competitiveness, global trade, investment flows, financial stability and long-term economic resilience. For India, the question is no longer whether climate action is compatible with growth. The question is whether the country can mobilise the scale of capital required to sustain high economic growth while simultaneously building a low carbon, climate resilient economy.

This challenge has acquired greater urgency. The recently released Baku to Belém Roadmap, prepared by the COP29 and COP30 presidencies, has proposed mobilising at least US$1.3 trillion annually in climate finance for developing countries by 2035. The significance of this roadmap lies not merely in the numbers but in its acknowledgement that climate ambition will ultimately be judged by financial flows rather than political declarations.

Yet every climate target ultimately depends on one indispensable ingredient: Finance.

According to the draft framework on India's Climate Finance Taxonomy, achieving the country's climate goals will require investments of nearly $2.5 trillion by 2030. Beyond that, India's energy transition alone could require almost $250 billion every year until 2047, even before accounting for investments in electric mobility, industrial decarbonisation, resilient infrastructure and emerging clean technologies.

The scale is unprecedented.

Equally revealing is where this financing is coming from. The Economic Survey 2025–26 notes that nearly 83% of India's mitigation finance and almost 98% of adaptation finance currently originate from domestic sources. While this demonstrates India's commitment to financing its own transition, it also exposes a structural imbalance within the global climate finance architecture. Developing countries continue to shoulder a disproportionate share of the financial burden despite repeated international commitments to provide greater support.

Climate finance, therefore, cannot remain confined to ministries dealing with the environment. It must become central to economic planning.

The consequences of failing to do so are becoming increasingly visible.

Global trade itself is changing. Carbon intensity is steadily emerging as a commercial consideration rather than merely an environmental metric. Mechanisms such as the European Union's Carbon Border Adjustment Mechanism signal a future in which carbon performance will increasingly influence export competitiveness, market access and investment decisions. Indian manufacturers operating in sectors such as steel, aluminium and cement are already preparing for a marketplace where emissions profiles could directly affect profitability.

In other words, climate preparedness is rapidly becoming an economic advantage, while carbon inefficiency risks becoming a commercial liability.

India, therefore, needs to think differently about climate finance.

The first priority should be creating a national financing ecosystem that connects capital with credible projects. Across states, municipalities, industries and MSMEs, there is no shortage of ideas or demand. What often remains scarce are well structured, investment ready projects capable of attracting institutional capital. Developing standardised project pipelines, improving risk assessment frameworks and strengthening credit enhancement mechanisms would significantly improve the country's ability to mobilise both domestic and international investment.

The second priority is recognising that India's transition pathway cannot simply replicate models developed elsewhere. Unlike many advanced economies, India's industrial expansion, urbanisation and energy demand are still growing rapidly. Sectors such as steel, cement, fertilisers, transport and manufacturing cannot transform overnight. India's evolving climate finance taxonomy rightly acknowledges the importance of supporting transition finance alongside green finance, allowing difficult to decarbonise sectors to progressively lower emissions while maintaining economic growth and employment.

Particular attention must also be paid to India's MSMes.

Large corporations possess the resources to navigate sustainability reporting, green financing instruments and evolving regulatory frameworks. Smaller enterprises often do not. Yet they form the backbone of India's manufacturing ecosystem and remain deeply integrated into global supply chains. Unless affordable finance, technology support and technical assistance become accessible to these businesses, climate transition risks becoming a competitive disadvantage rather than an opportunity.

Equally important is broadening India's understanding of adaptation finance.

Public discourse continues to focus predominantly on mitigation. However, investments in climate resilient infrastructure, urban cooling, water security, flood management, coastal protection and resilient agriculture are equally critical. These should not be viewed merely as expenditure on disaster preparedness. They represent long term investments that safeguard productivity, reduce economic losses and strengthen national resilience.

Domestic capital markets also have a much larger role to play.

India's sovereign green bonds have established an encouraging foundation. The next stage should focus on expanding municipal green bonds, blended finance mechanisms, climate focused infrastructure investment vehicles and state level financing facilities that can mobilise significantly larger pools of long-term domestic capital. Climate finance cannot rely indefinitely on limited public resources. It must increasingly leverage institutional investors, pension funds, insurance companies and private capital.

Regulatory reforms are moving in the right direction. The Reserve Bank of India's green deposit framework has introduced greater discipline and transparency in the mobilisation of green finance. The next phase, however, must focus less on reporting alone and more on ensuring that capital reaches projects capable of delivering measurable environmental and economic outcomes.

Internationally, India must continue advocating for a more equitable financial architecture.

Climate justice should not be interpreted as charity. It is about ensuring affordable access to capital, reducing financing costs for developing economies, improving technology access and reforming global institutions that continue to price developing country risks disproportionately high. Without addressing these structural distortions, global climate ambition will remain constrained by unequal financial capacity.

At the same time, India cannot afford to postpone its transition while waiting for international systems to evolve. Building stronger domestic financial institutions, expanding climate-ready project pipelines, strengthening data systems and creating deeper capital markets are priorities that lie within India's own control.

Ultimately, climate finance is not an environmental conversation. It is a development conversation.

It will determine how quickly India modernises its industries, strengthens energy security, protects export competitiveness, generates green employment, builds resilient infrastructure and sustains long term economic growth.

For a country aspiring to become a developed nation by 2047, climate finance is no longer a supporting pillar of environmental policy. It is one of the principal foundations upon which the vision of Viksit Bharat will be built.

The countries that successfully finance this transition will shape the global economy of the coming decades. India has both the opportunity and the responsibility not merely to participate in that transformation, but to help define its direction.

(The views expressed are personal)

This article is authored by Kaviraj Singh, CEO, Earthood.