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At COP31, India must make climate finance more than a negotiating point
Indian policymakers should frame climate finance as part of the broader narrative about development finance.
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Climate financing is expected to be the key deliberation topic at COP31, not only due to rich countries' inability to keep their financial promises but also because the system of international capital does not answer the needs of developing countries. Thus, India should make a shift in its negotiations from asking for more money to ensuring the funds can be obtained under the conditions that enable countries to expand energy access while reducing emissions.
The focus of the debate has shifted beyond the original figure of $100 billion. At COP29 in Baku, nations reached an agreement around the commitment of developed countries to create mechanisms to mobilise at least $300 billion by 2035 for poor countries, calling all players to increase both private and public financing to a total of $1.3 trillion by the same year. The Baku-to-Belém Roadmap stressed the importance of grants, concessional, non-debt instruments, fiscal space and the use of the currently available institutions. COP31 in Antalya from November 9 to 20 should now move the discussion away from the amount of financing to how to deliver these resources, since the main test of this evolving architecture will lie in the transformation of the global commitment into accessible capital on the ground.
India’s transition reflects the size of the gap. A NITI Aayog report released in 2026 estimates the total investment needed to achieve net-zero emissions by 2070 to be around $22.7 trillion, with a financing gap of around $6.5 trillion even under optimistic assumptions of domestic capital formation. Power accounts for around 82% of this gap. Now, annual climate finance inflows are around $135 billion and around $87 billion of this amount goes into clean energy, resulting in a huge gap compared to an annual need of $250 billion to $450 billion.
The gap is not just about unfulfilled commitments. It reveals a greater issue concerning the structure of development finance, in which concessional funds are limited, multilateral loans are usually costly and private financing is not readily available for sectors with long repayment times and supposed political impediments. The studies of India’s development illustrate the shallow long-term market, the mismatch between assets and liabilities and piecemeal project pipelines. International sources may fulfill up to 42% of India's capital requirement in 2070 as opposed to merely 17% in 2022-2023; outside sources must enhance and/or ease local efforts by reducing risks instead of replacing them.
In this context, it follows that headline figures can present a misleading impression. A loan issued at commercial rates of interest may be counted as climate finance from an accounting perspective but achieve little in terms of reducing the cost of capital for solar parks, grid projects, storage projects, or urban water and sewerage modernization projects. In addition, it increases the debt load of the recipient and puts its assets at risk owing to currency and refinancing hazards. $1 billion raised is unimpressive in case of expensive debt paid back in a short time period, while even an amount of concessional money spent on de-risking the project allows raising a multiple of that amount from private investors. The goal is to maximise investment efficiency per dollar of public money while keeping the debt burden within reasonable limits.
As such, Indian policymakers should frame climate finance as part of the broader narrative about development finance. Multilateral development banks, export credit agencies, and bilateral lenders play a central role in making the cost of capital lower by offering longer maturities, lower interest rate and risk guarantees via blended finance approaches, such as first-loss funding and political risk insurance. Such institutions can absorb part of the risk that scares away private sector players while ensuring the fulfillment of social and environmental requirements. The objective must be to attract far more investor money and to cap the risk borne by developing countries. Climate finance set up in such a way can allow the private sector to invest more rather than be just a small amount of grants and loans exhausted by a couple of pilot initiatives.
However, this does not imply that India should renounce its quest for sufficient public financing from developed countries. It is essential to use donations and grants in the form of soft loans for adaptation measures and damage and loss as well as for industries where it is too challenging or even impossible to earn. For instance, risks involved in solar plants generate returns, while urban flooding, ensuring drought resilience and coastal protection usually do not. The projects which have the most significant social impact are often the most difficult to finance, and developing countries should not be forced to borrow. India's diplomacy should also focus on the terms on which capital is made available. Cheaper, longer-term finance for clean energy, resilient infrastructure and climate-smart agriculture would let countries scale up investment without compromising debt sustainability, in line with India's own strategy, which relies mainly on domestic savings but still needs external finance for technology, grids and storage.
Capital cannot be automatically absorbed. The availability of money will not mean investment if there are no acceptable projects, feasibility studies, knowledge of transactions, and the capacity for utilising sophisticated financial instruments. While the facilities for project preparation do not receive as much attention as billion-dollar announcements, they often decide whether capital can be effectively used. NITI Aayog has suggested that there should be better markets for corporate bonds, a bigger share of institutional investors and the creation of a National Green Finance Institution to refinance, de-risk and aggregate green assets. International finance must support these reforms rather than substitute them.
India should, therefore, focus on four interconnected objectives at COP31.
- First, multilateral development banks should increase concessional lending for climate activities in middle-income countries and set ambitious goals for loan conditions, including tenor, interest rates, guarantees and mobilisation of private capital.
- Second, the blend of public and private financing should emphasise adaptation and resilient infrastructure, making it more favorable through grants and concessional funding. Third, climate financing should be made more transparent and involve distinguishing between types of financing, including grants, concessional and commercial lending and mobilised private capital with details about their cost conditions.
- Fourth, international funding for project preparation has to be strengthened so that financial commitments turn into real investments.
Such demands can redirect the conversation from symbolic promises to tangible changes in the way money moves. In addition, it will bolster India’s role as the representative of the Global South without transforming the climate finance question into a mere numbers game. Climate finance is associated with sovereign borrowing rates, development banks’ risk appetite, and their clients’ economic wealth. India's credibility will be based on the ability to present international capital as a tool for reducing the constraints on investment and technology transfer, while its own institutions are further developing their domestic capacity.
The climate-finance divide will not disappear at COP31, but the summit has the potential to change the narrative surrounding the issue. India can present its case that the efficacy of climate financing is not testable by the amount that is put on the table but by the extent to which capabilities such as a solar park, a grid upgrade or a city modernising its water and drainage systems can access capital at a cost it can afford. That is the measure by which climate finance should be judged, and it is the standard India should demand at COP31.
(The views expressed are personal)
This article is authored by Amrendra Pratap Singh, scholar, public policy and governance, Ambedkar University Delhi and Janvi Singhi, senior research fellow, IndiaForth, Sydney.
