Private Financing Needs Public Support

Climate change impacts are being felt in all spheres right from what we eat, to what we wear, to how we act. Almost 4.5 per cent of India’s GDP is at risk by 2030 because of lost labour hours owing to extreme heat and humidity, states Reserve Bank of India Report on Currency and Finance 2022-2023. Governments, organisations, and multilateral development institutions are engaged in climate action.

Even at the recently concluded COP28, countries agreed to make the Loss and Damage Fund functional. It will be finance flow for the countries that are vulnerable to the effects of climate change. The fund has nearly $300 billion in it. 

However, public finance will not be enough to “bridge the adaptation funding gap in India”. It will be important to attract private finance; the public institutions can create a database “to connect climate adaptation projects with private financers”, according to Financing Adaptation in India (2024) a report by Climate Policy Initiative and Centre for Sustainable Finance India. 

It further cites that worldwide and in India private adaptation finance is needed due to factors like information asymmetries, gap in knowledge, high starting costs, long breakeven period and lack of trusted projects and business models.

Dipankar Ghosh, Partner & Leader, Sustainability & ESG, BDO India, says, “Weak alignment between national adaptation priorities and private sector business models, coupled with a dearth of demonstrated return on investment, are believed to be the two major barriers of the private sector’s venture into adaptation finance.”

Adaptation Gap Report (AGR) By UNEP (2023) states that the adaptation finance gap is increasing and is currently at between $194 billion and $366 billion per year. 

Majority of the finance needed to deal with climate crisis is aimed at mitigation. If the world has to mitigate the impact of climate change, the humanity will have to focus more on adaptation.

The World Economic Forum says that nearly two/thirds of adaptation funds worldwide are diverted to developing countries, which implies developing countries “are the entry point to access the adaptation market”. 

Ghosh adds, “The blended finance model, especially in the form of private-public partnership indeed helps in minimising the private sector’s risk, and therefore is a strong motivation for private sector’s participation.”

Inderjeet Singh, Partner, Deloitte India, says, "Larger economies like India would have to ensure that national budget is calibrated towards low carbon and climate resilient development. To further catalyse the investment, the following AIP approach through blended finance can be explored. He elaborates:  “A – Aid: International organisations can provide financial support to developing countries especially the larger economies like India; I - Innovative finance: Instruments such as green bonds, structures like Green InvIT and platforms like GIFT IFSC can support funding requirements; P - Public Private Partnerships:  These can help leverage resources and expertise between government and private entities.”

Source - Planet Outlook India