Bonds, Banks & the Battle for a Greener India | ft. Neha Kumar

[Podcast intro]

Welcome to the season five of the India Energy Hour podcast. This podcast explores the most pressing hurdles and promising opportunities of India energy transition through an in depth discussion on policies, financial markets, social movements and science. Your hosts for this episode are Shreya Jai, Delhi based energy and climate journalist and Dr. Sandeep Pai, energy transition researcher and author. The show is produced by 101 reporters, a pan India network of grassroots reporters that produces original stories from rural India. If you like our podcast, please rate us on Spotify, Apple Podcasts or the platform where you listen to our podcast. Your support will help us reach a larger audience.

Achieving a low-carbon economy will require trillions of dollars in new investments across renewable energy, infrastructure, industry, and climate adaptation. As India races toward its clean energy and net-zero goals, one question looms large — where will the money come from? What roles will domestic and international finance play, and how can innovative instruments such as green bonds and blended finance help bridge the gap?

In this episode of The India Energy Hour, we speak with Neha Kumar, Head of South Asia at the Climate Bonds Initiative, to unpack the complex and rapidly evolving world of climate finance. Neha, a globally recognized expert on climate finance, shares insights on how India can mobilize capital for its green transition and unlock opportunities for sustainable growth.

[Podcast interview]

Sandeep Pai: Neha, welcome to the India Energy Hour. It’s really, I’m very excited about our conversation. I feel like I will learn a lot after an hour of our conversation. So really excited to talk to you about climate finance.

Neha Kumar: Great. Thank you, Sandeep. And it’s really, like I was just telling you, that I’m getting to say hi to you as through a podcast, but we should have talked much earlier and we should talk much more often. So I’m looking forward to the conversation today.

Sandeep Pai: Wonderful. So let’s just get started. I think I want to know about you. Where are you from? What’s your background? How did you get into this space of finance and then climate finance and all of that? What’s your story?

Neha Kumar: Yeah, it’s a good question. And when you are asking me, what’s my story? And I think it’s final, beautiful chapters are still to be written, but it has been an exciting, exciting ride. And I was pondering over it. And I sometimes do ponder. How did I land up in a place on climate finance when I did not study finance or economics all my life? How did I land up doing this exciting piece of work along with, you know, absolutely brilliant colleagues inside the organization, outside the organization, in the ecosystem? So I think I have to say that it all started perhaps from my early childhood years to school, to college, to university. And in hindsight, everything fits, right? And when you are in that moment, you probably do not know what all kinds of what kinds of transitions that are occurring in your own life and how you’re scripting those yourself in a way. I think during school and my growing up years, I come from a middle class family from a town in Western UP by the name of Muzaf Farnagar. These are the badlands of UP, indeed. And I also then grew up and got my schooling in Rurki. It’s a small town. It’s an engineering town. You might know that there is an IIT in Rurki. So I grew up on campus. In that sense, I was, you know, I was lucky that my parents were academics. And my father was a political science professor. And my mom was a person of education. So she was involved with the University of Rurki as well. Why I go back to my school years? I think it was because conversations around nature and society and politics were almost dining table conversations in my family. So I grew up, you know, being asked by my father, what do you think about, you know, what is happening around you? And it was a very interesting time also because when I was in class eight or nine, then things like Mandal Commission were becoming very, you know, important and prominent. And all students, you know, whether they were schools or colleges, they were getting to hear about these things, which was quite out of the ordinary. Right. So I started asking a lot of questions, I think, at that time. So if you ask me, where did my interest in climate got picked? I think it did not begin as climate or environment. It began as questions of equity. It began as questions of, you know, what do people get to access? How do people earn their wealth? How do people, you know, get educated? And all of those things were the initial starting points of me basically questioning almost everything. So sustainability, when it became a word before that, it was just a set of questions for me, Sandeep, to be very frank. And I studied like a child born in a town which has IIT. I studied mathematics, physics and biology. So that was my combination of subjects when I was in class till class 12. And then very naturally, naturally for everybody else, not so much for me. I was I had always been interested in the questions of politics and art, as I just told you. But very naturally, everybody thought that I should do either engineering or medicine or, you know, something which was a professional education. And I think I was veering away from those fields of interest. I did do my Bachelor of Sciences in zoology. But I think I just told my father that I would would like to primarily be a student of politics, learn about society. And then it was a choice that my father said, OK, fine, if that’s what you’re interested in, you know, go compete. And Jawaharlal Nehru University has been a fountainhead of everything good about humanities that we have probably in our educational system. And he said, OK, fine, if you’re interested, why don’t you compete? And I came to you to do my master’s. And that’s where I think I got very naturally gravitated, not only towards politics and international relations and, you know, how countries work, but what are going to be the new sources and reasons of conflict between societies and between nations. And I think that just kept on building up without me knowing where will I really land up? I was very much a student of politics and conflict and diplomacy. And then that became that remained an interest, but an equally important interest that grew at that point in time was about environment and environment negotiations and, you know, Kyoto Protocol and everything that you had in that in those in those years. And so I did. And also, by the way, information technology. So I think I was just attracted to some of these new ideas that were emerging at that point in time. I made use of my university time in exploring some of these ideas. And let me just share with you. And it’s a little bit of a funny story now that I look back at it. My PhD topic at that point in time, 2001, I’m talking about, was on sustainable business and energy. And I wrote my proposal that got passed the you know, I was ready to do a PhD. And at that point, I said, I’m not doing a PhD. I want to work and I want to work somehow on these topics. And so my finding of what I’m truly passionate about today was somehow a very organic journey to questions that interested me to the curiosity that I wanted to always kind of find out. Okay. Okay. But one key aspect, I think, was the question of how will, you know, countries and civilizations survive if environmental conflicts actually erupt? And then what are those sources? How will we deal with them? Come to them. So that’s how my interest got picked, Sandeep. But shoot on. I will be happy to answer any other questions as well. Yeah, that’s how that that’s that. That’s sort of in my student life, how I got interested in this. And later on in my years that I started working, I think every just started adding up. So I did not plan very, very consciously what my next job would be. But I perhaps was interested in these questions. And I found myself and I feel extremely lucky, Sandeep, that I found myself in situations where a job had a word called non-financial risks. You know, it had a word called sustainability. And then basically all the job descriptions were pretty much, you know, scripted henceforth by me in terms of where the interest was leading me to. And how the situation in your own country and internationally environment, equity, business, policy, finance, almost, you know, in a very organic manner since the first day I started working. It hasn’t it seems to be coming now to a full circle. But as you were just talking, there is so much happening in the space, you know, that you’re always, you know, trying to keep on top, trying to see what are what is the arc of development of all of these? You know, what has been the arc of development and where should your society, your country, your state, your city go in the larger, you know, development on environment per se, environmental finances, definitely an integral part of how we will need to manage our future and script our future. In fact, script the transition. So yeah, that’s, I think, a long story told in an equally long winded way.

Sandeep Pai: No, no, thank you for sharing that. I just want to like go back to one thing you said. I mean, you started out like many people in the field, but it’s almost like an inverted pyramid. You, you know, you look at so many different issues, and then you kind of slowly specialize and you specialize and you go deeper. So I’m just wondering when did that sort of pivot, maybe pivot is not the right word. When did that moment happen when you actually started really focusing on finance and climate finance? Was it a job that led to it? Was it a paper? And, you know, everybody has different entry points. So yeah, just curious. How did you get that break to work on that?

Neha Kumar: Yeah. Two, two specific points, I think, in the jobs that I was doing, right? I was working with GIZ on, in fact, let me just go back before GIZ a little bit. I was working on non-financial risks with a boutique consulting firm, which Sandeep made me go to all the mining rich belts of India, you know, because those early 2000s was the time when there was a lot of mining boom happening in the country. A lot of places were, you know, facing displacement issues, land acquisition problems. So there was this whole idea of what those non-financial risks would look like and how would they manifest for investments. So that was my initial sort of entry into the risk part of, you know, investments, but from an external vantage point, meaning what are community risks, you know, political risk, etc. But when I joined GIZ, I joined GIZ in 2008. And I remember that in 2007, RBI had come with its circular on how it should look at sustainable development, how why should banks look at sustainable development. But the circular or the advisory, whatever you want to call it, it came and it died, you know, because it was so ahead of its time, that I don’t think that there was any kind of focus discussion on what would it mean for banks and for a central bank, etc. But those were the that was the initial trigger and where I started looking at the question of finance. So I actively started looking at it in 2009 alongside my main job, which was about sustainable business and not so much about sustainable finance at that point of time. So I was, in fact, working on what you currently know as, you know, business BRSR. These are the disclosure norms mandated by SEBI. In fact, that was the project that I was working on. And then we wanted to take similar ideas to the banking constituency. And that’s when I started getting very actively involved in that. And in 2015, 16, you know, there was a G20 study group, which was formed on on sustainable finance. It was a study group. China was leading it. India was a part of it. And all of these conversations had become very, very alive because of the Paris Accord in 2015 that that got signed. So there was an international momentum or a sound that was getting created. And in India, we had already moved into sustainable business conversation and discourse. Banks were, you know, a couple of banks had signed equator principles. And, you know, those those were very, very initial days of of looking at this problem in any sort of manner, really. And so, yeah, so that was a point when I entered into this field. And you can say that it was a canvas, a pretty much a canvas on which things were to be written. Right. So in that sense, I find myself to be lucky in the space of policy, industry, nexus, that that intersectional space where I was pretty much part of that small community of practitioners who had started looking at the questions of sustainability and sustainable finance in India. so, yeah.

Sandeep Pai: Yeah. Wonderful. Wonderful. I mean, I could just talk about your own story for the whole podcast, but let’s get to the topic of today’s discussion, because it’s very inspiring for me. This is my favorite part of the podcast, because everybody has a different story. And it’s so interesting how people get into the space. But let’s move to the topic. So, you know, just let’s just start with one on one of this kind of topic of thinking about climate finance. So, you know, what are the different sort of categories of finances that could be leveraged for India’s green transition? Like break it down into like as many categories as you like, just to give people a one on one of the topic.

Neha Kumar: Yeah, yeah, yeah, absolutely. And I think and I’m so glad that climate finance is now becoming a topic where the, you know, mainstream economists are putting their heads to because it is important for your country’s growth, the trajectory. And what do you want to, what kind of competitiveness, you know, can you accrue through this transition? So it is it is not a small question by any means. It is also a very, very big, you know, question of how do we prepare ourselves to tap the opportunity that it brings with itself. Besides the question of how affordably can you transition, etc. When the sources of finance could be limited, right? So I’m making this sort of a big statement to then start breaking it down into its various components. Now, let’s begin with the kinds of capital or kinds of finance that a country has or or can tap into. You know, so definitely, you know, there are budgets and there are allocations of the budgets. So government spends on various things. And that is a very, very important source of financing growth and development for a country. Right. Now, then you have, you know, that’s the that’s the public money’s part of it. And then you start getting into the private capital part of it, which is also varied. You know, some capital comes in to companies to support their early stage stages of growth. Usually this is known as venture capital or risk capital, equity capital. And then once you have tested, you know, your your your business models and they’re ready and they have they have started coming into the operational stage and they start generating revenues and you have cash flows. Then, you know, more long term capital starts coming. And that is in India’s case is financed a lot by banks and. And by debt capital, but not to that extent for the corporate sector. And I’ll give you the reasons in a minute. So that is commercial capital and commercial capital. Again, like I said, can be can come from banks, which will give companies loans and then the companies will have to repay that loan. And then there is this other side where institutional investors like the pension funds, like the insurance funds start getting start investing in in in in companies. And these are basically risk averse funds because they hold people’s money. This I mean, our pensions can’t get wiped off. Right. And we will know we will we should talk about, you know, how climate is such an integral part of keeping our pensions coming because climate risk is such a huge part of the calculus now for all kind for for this kind of financing to to to take account of. So so that that part of capital will be your pension funds and insurance funds. These are long. These are long. They invest in they can give you a very long turn or pool of capital. And in different countries, the depth and the liquidity and the availability of these capital, especially the institutional capital, varies to be invested by private sector. And why this is important is that climate transition cannot be financed solely through government and government money. We need private capital and we need also long term patient capital because most climate investments have this long sort of a time period in which, you know, you take any investment, right? You take a renewable energy investment. So you need a large amount of money right up front and then you need it for 2025 years. So we need a lot of long dated capital along to north capital to come into this. We have been doing reasonably OK, but structurally, India’s debt capital markets are still shallow. They are they are they are beginning to have a lot of activity. But our economy is mainly, Sandeep, bank financed. So in our climate finance story, we need to look at all sources of capital. Right. When it comes to banks, equity, you know, institutional capital. And also we need to see then. The other capital, which is none of this, but it is in the form of grants. Now, that is a very, very small kitty. And that is what everybody sort of fights over at COPS. Right. That it should be much more. There should be, you know, the developed countries should be able to give much more of that. But as probably I don’t know whether you agree with me or not, but this kitty is going to get even more scarce and we will have to find hence newer ways of structuring capital flows so that transition can be financed. And by any account, you know, the numbers vary in terms of the financing needs, but it runs into trillions of dollars. So by any account, we need a very, very strategic use of public money, which is very limited and a much greater participation of private capital. Wonderful. I mean, I loved how you explained the domestic capital, the government capital, and then the capital early stage and then the later stage.

Sandeep Pai: Thank you for laying out the big picture. I just wanted to understand, like, there are so many studies that estimate that this is the finance gap, etc. So for different categories of capital, if India were to meet its goals of net zero or, you know, even in the short term for meeting more of like solar targets, etc. What is the gap in different categories? And by the way, before you answer, I fully agree. I also think that grant size A is less. It’s going to get lesser. And there are so many countries that are competing. So it’s not even clear why would like India get some of these grants compared to Mali or, you know, Pacific nations. And so obviously there’s a lot of claimants for a small pool. But yeah, coming to the question of like, what’s the gap?

Neha Kumar: Yeah. So let’s begin from sort of debt capital basket. And then let’s move to equity and venture capital basket. Why I will take up the debt first is because Climate Bonds directly works on that bit. It is our domain. So I’ll be able to throw a lot of numbers, you know, at you easily. Equity is not something that we directly work on. But there are some numbers that will be relevant for our discussion there also. So if you look at debt capital, let’s divide it into loans and bonds. And now I’m talking about when we say climate finance and there is a word which is, you know, getting attached to finance. That’s climate, right? That’s a label. That’s the part that is most important. So when we talk about climate finance, I will first give you an idea of what has already been labeled as climate slash green finance. Okay. Now, why this idea is important is that you would see that in a span of 50 years, you know, Climate Bonds was founded in 2009-10. 2007 was the first green bond issuance by World Bank and AIB. And since then, Climate Bonds has been pretty much, you know, at the forefront of the green bond universe through a couple of interventions that it started making early on. It started defining what counts as green. Okay. And now as we have, you know, got to today, now we are also defining what counts as transition. You know, so when I’m saying climate finance, I’m using these categories, you know, I’m using these labels. And the labeled universe, Sandvik, in the world has what was 10 billion, a couple of billions in 2008-9, is now $6 trillion outstanding globally. So all of this could not have happened only on the account of, okay, let me do, you know, I’m doing this for the good of environment. It means that there are very tangible benefits that investors see in this labeled market, what has now come to be known as a proxy for sustainable debt market, in which, you know, you have loans and bonds also, but it started off, it got started off with green bonds. They were the simplest instruments. There was no, nothing new. There was no complexity. They were like a regular bond with the green feature and with the feature that you will have to report to the folks, your investors, that whatever you raise your money for has been allocated to that particular stated purpose. The transparency became an amazing strategy for investors because they started, you know, talking to the borrowers of capital, in other words, the issuers of bonds about green. And why did green pick up? Green picked up because of Paris Accord getting signed. Green picked up because of, you know, some of these mandates in portfolios of investors coming through. And that just, and then, of course, a very, very big thing happened, China. China just revolutionized everything. The solar panels, you know, the way they sort of made the whole green revolution happen. You can credit it to the policies and commitments, but also to what China did in those years. And so, yeah, so it picked up the interest of investors and it picked up the interest of issuers who then were able to access a wider pool of investors who were demanding them to be green. So, suddenly their pool of investors started becoming bigger, which is a great news for any issuers because your risks get diversified. And it is a fantastic news for an investor when an issuer is, you know, raising a labeled debt instrument, because now the investor talks to the issuer, looks at their risk management strategies much more closely, knows that, you know, it will be transparently allocated. And so, the benefits are mutual. So, that’s how that began. And so, now global picture is around $6 trillion of green bonds. And there are many children of these thematic bonds. You know, there is blue, there is yellow, there is orange, there’s all of that. But the idea of thematic bonds is the essential essence of, you know, everything about climate finance. I will tease a couple of, you know, differentiating factors between sustainable and climate a little bit in just about a couple of minutes after I finish this train of thought. And coming to now India, you know, coming to emerging economies, coming to India, India issued its first green bond in 2015. Why I’m spending some time on green bonds is because it’s literally a proxy for how sustainable finance slash and, well, I should not say slash, sustainable finance and climate finance, you know, have emerged. And so, India has now issued nearly $60 billion since 2015. Now, that is a reasonable number, you would say, you know, okay, fine, that, you know, Indian issuers are raising this capital because they are getting preferential pools of capital which want you to actually invest in green projects. They are chasing those green projects. They are chasing those green projects. But that demand is largely coming from offshore. But in relation to the kind of climate finance needs we have, of course, we can do much more. Compare ourselves to China. China’s total issuance today stands as $555 billion. And, you know, people say that, oh, you don’t compare to China. China is a completely different beast altogether. I would say, no. I mean, India is now, you know, betting on a big game. And India wants to be advanced economy status by 2047. And everything that India does now is if India is saying that it is going to play the big league, then, well, China, Brazil, all of these guys are going to be our, you know, appears in that development and growth race, if I could call it. And so, yes, we should compare ourselves definitely with all other large emerging economies. We have our differences. Sometimes they are not great in terms of, you know, how easy or let me rephrase it. I mean, the way Indian political system, Indian polity, political economy functions may be different from that of China, you know. But we have to bring our house on the line of a climate aligned growth. So we have to compare ourselves with the benchmarks which are higher than us in today’s state. So that’s the story of commercial capital in the bond space. Loans are, again, this is a very, very big universe. You don’t get so much public data on labeled loans because generally they’re bilateral transactions. And not everybody labels there, even if it is a green loan, as a green loan. And let’s then come to equity coming into. And let’s also just I’ll give you a little bit of very, very quickly a split of, you know, the sectors where this money is coming to. The money is coming to renewable energy, utility scale, transport. That is the major recipient of, you know, the green finance. But it is also going, starting to go into building sector, into resilience, into water infrastructure. And as you would perhaps completely be aware of that our steel companies, our cement companies are also dipping into this pool of capital to finance their capital expenditure plans. Capex plans aligned to greening of steel or cement or whatever that is. The equity capital, again, equity investors or investment landscape. And this is the data that I’m quoting right now, which comes from our close collaborators, Climate. And they were they were telling us in our state of the market report. We prepare the state of the market report every year, Sandeep. And it is it is their data. And they say that out of all that the equity landscape of investors is increasing. There are nearly 457 or 67 equity investors, which have repeatedly come to, you know, projects in the emergent technologies. And, you know, basically, basically those spaces where early, early stages of growth are are important in the clean tech sector. So let me just quote this for you and I will simply read this out what I have in front of me. Yeah. So it is climate equity investor landscape. It is expanding and over half of 475 investors in Indian climate enterprises. Between in a span of three years, between 2020 and 23, they were the scope was this much. And venture capital and private equity. These guys account for more than 50 percent of all investors. So they basically approach their investments through a lens of impact or deep tech investments or business model perspectives. So this is this is just the general two broad baskets. And I would think I would stick to these two. The multilateral development banks, the MDPs, the major ones active in India, World Bank and ATP. They, I think, give us nearly six to seven billion dollars a year. And the other ones like the GCF and GEF, et cetera. Their kitty is very, very small. It’s nearly it reaches up to around till now, till 24. I think it reached up to around one point five billion dollars. And you would say again, oh, my God, it is so small. Yes, it is very, very small. So we can’t be reliant on MDPs alone. So we have to have a mix of capital for the for the kind of projects that need the kind of capital. Somebody will require equity. Somebody will require debt, et cetera. Somebody will require a combination of concessional finance coming from MDPs. You know, also philanthropic capital, et cetera. But MDPs overall are important because while the kitty is small, they give you technical assistance. They give you other kinds of assistance, which are absolutely critical to push some of our technology developments over the line. For energy transition and for adaptation, etc. Yeah, the other thing that you need to know is that in India’s case, most of the capital mobilized has been through domestic sources. International capital has been very low. You know, only the big guys with strong balance sheets, they go abroad to to raise this capital. Then and in terms of the difference in demand, the demand of green investors is basically eliminating off from offshore. Indian institutional investors are the interest is very, very fledgling. The sovereign green bond issuance has done some good, but a lot of support measures are required to give it the accelerated pace and scale that is required for India’s transition. Right.

Sandeep Pai: No, lovely. I mean, you answered some of the questions I wanted to ask. But one thing I wanted to take you to is because, as you mentioned, that most of the finance currently is domestic, but although the international bit is warming up, if I can put it that way. One thing I was wondering is that India’s green transition is in states. It’s not a central big, you know, company. So how what roles can states, cities, plain, you know, leveraging this finance? And can you share some examples if if states and cities have taken up anything, which gives us a positive signal towards them moving?

Neha Kumar: Yeah, absolutely, Sandeep. Now, like you rightly said, our transition is and will not be complete, will be partial, will not even perhaps, you know, manifest in a comprehensive manner unless states and cities get involved. Right. So this is absolutely critical. Till now, what you have seen is the is the PFCs and RECs of this world or the big companies like NTPC, Radar, Renew, you know, active in some of these green sectors going and accessing capital. And then you have seen Government of India issuing a sovereign green bond. OK, so, yes, that level is working. Or dipping into this, I would like it to be much more coordinated, much more sort of, you know, bold program at the central level. But without states, we are probably not going to be able to make enough progress. And the stories there are emerging, which are both a sign of promise and interest. And in India’s case, as you would appreciate, also challenges. Right. Now, let me just tell you the opportunity areas driven by the challenge that the public monies are limited. Cities. Now, cities, it is absolutely clear that this is where our future story will be written or, you know, we will break ourselves or make ourselves in the cities. Not to say in the Indian context that our rural infrastructure and agriculture is not important. It is absolutely critical, even for urban development to go without setbacks. Right. There are too many pressures. And we are very different from, you know, advanced economies in that sense. Now, cities, you would let me, without the addition of climate, et cetera, let me just tell you that a World Bank study said that we require nearly $15 billion annually for urban infrastructure. Okay. Okay. And the current, you know, spending or infrastructure investment in the cities is minuscule in, you know, in relation to the infrastructure finance requirements. So, where is the, where are stories of hope? The stories of hope are now in the municipal bond issuances, definitely. Now, one could argue that our size of municipal issuance is so small. So, so small. So, what is the story of hope over there? And I think the story of hope there is that even though that it is a small market, it is very clear that the government budgets, the state grants, et cetera, are not making the cut. You need to go through market borrowing aspect. And they are also raising, by the way, loans from banks. But there are incentives that the Ministry of Housing and Urban Affairs is giving. And municipal corporations such as Vadodra, Surat, Indor, Ghaziabad, all of them have now dabbled into labeling their market borrowing and coming out with green bond issuances. Surat just listed its green bond issuance two days ago. And in fact, it was also, climate bonds was associated with that issuance in terms of recertification. Vardodra did that. Indor did that. Indor did not label it. You know, there wasn’t a process until then or a SEBI guidelines until then. So, it is a self-labeled loan. So, is Ghaziabad. And so is Ahmedabad earlier. But these guys are now coming to the market using the incentives and using the label to dip into the sustainable debt market. Of course, this cannot be a one in a few kind of issuances. So, every municipality will need to draw sort of a programmatic view of how much borrowing it can, you know, do from the market and whether it will be labeled any, whether it is green or blue, whether it will be labeled. It will have to be labeled. If it is doing market borrowing and if it is saying that it is for green purposes, then now SEBI requires them to label it and SEBI requires them to externally verify it. So, there is no self-labeling anymore. So, yes, as I see the market of municipal issuances, even though small, but every issuance counts. Some of the other municipalities like Pimpri-Chinchwad and Agra and Varanasi, they’re all looking at raising these bonds. Because a large part of what they do, you know, whether it is sanitation, water infrastructure, sewage treatment, all of that falls largely within the green category. Now, they just do have to do it systematically. Do we didn’t do it? They have to do it in a verifiable manner. And they can do that because the government is also giving them additional incentives. Now, that’s the city bit. Now, in India’s case, cities are also not completely dealing from states and how states themselves can use this avenue. So, there are two or three things. Quickly, I will tell you. A government can itself raise bonds. Okay. So, a state government can itself raise green bonds. And then it can also facilitate state-backed entities to raise green bonds. And by doing so, it makes it very clear to investors about its green commitment and transition, etc. So, it starts to build itself as a green investment destination, if I could put it like that, right? Now, states, if they can tag their budgets, the capital expenditures, the expenditure items in their budgets, green. And there are, you know, a bunch of states which have started to do this. But the methodologies all differ, Sandeep. You know, some states take some methodology of green budgeting. So, there is no uniformity in how they are, you know, doing this green budget exercise. But my submission is that if this methodology was aligned and consistent with a robust taxonomy, then the expenditures can all be tagged. And those expenditures can be auctioned through what is called through RBI. RBI is actually the debt mobilizer for states. But this is exactly similar to a sovereign green bond, but it is called a state development loan. Now, you will have a green SDL, which will be a bond issued by a state government. There is no state government which has done it yet. But after the sovereign green bond issuance, Maharashtra took that step forward and said that, okay, I will also do it like the sovereign green issuance was done. And basically, there will be a process. They will have to nominate the projects. And all of that will have to be verified. And, you know, all of that will have to be reported against. And that’s what state itself can do. State government itself can do. A lot of PSUs can do that as well. And that is important for energy transition, Sandeep. And you probably know it better than I do. That in many states, a lot of these PSUs, which are, you know, the Gencos, the power Gencos, right? They can raise, they can use this instrument. And by the way, the beauty of green bond is that it can be limited to an asset. So, an NTPC can and has issued a green bond for its RE activity. In the overall transition story, when entities, overall transition starts to come into play, then, of course, there are, you know, other requirements that the investors will look at. They will look at your overall plan. They will look at your overall strategy. But when it comes to green bonds, they can be asset, limited to assets. And then you can actually issue against those assets. So, state-backed entities should be part of this, you know, transition finance. Not so many of them are participating, but not because not so many of them are credit rated. To the extent that they can participate in the market borrowing. So, they need some kind of credit enhancement. They need some kind of backing to come. And those structures are also important for a lot of these, you know, folks in the state to come on the green kind of investment pipeline. So, things are happening and they are actually also accelerating in a considerable way. But the scale that we require can only be achieved through multiple, you know, points of, whether that’s regulatory incentives, whether that’s credit enhancement. So, it is, we have to see the green finance ecosystem in a very interconnected manner. And just the last statement on this one is that climate or green sits on top of a regular, you know, structure. So, if your business model is weak, then you will not get investment green or non-green. You know, it doesn’t make a difference. So, you will, I’m talking about commercial loans and bonds. Okay. So, the entire idea is to make, is to access thematic, you know, finance for what is a good business model. And that’s the bit that my work, you know, it makes me, I mean, I’m involved in. There are, on the other side, equity aspects, etc., etc., which are also important, by the way. There are, National Stock Exchange, for example, is working on green equity principles as well to get a lot of those kind of investments to come online because those equity investments, when they mature, they will require debt. So, everything is pretty much interlinked in the field of finance and specifically in the field of green finance also. So, states absolutely will have to not only look at these instruments, but before even looking at these instruments, I’m sorry, I thought that I will have my last statement, you know, just before I started on this statement, but this is an important one. Whether it is sovereign or it is sub-sovereign or even if it is a corporate or even if it is a financial institution, the idea of creating a robust transition plan, now I think is central to our path to financing transition. And when I say a transition plan, it means that it has long-term targets, it has intermediate targets, it has an implementation plan, and it has an investment plan. So, what we do not see in the ecosystem in a very robust manner is an investment plan of either a corporate or a financial institution or a state government. So, that is where I think a lot of work needs to go, needs to go, needs to be driven. And it is becoming, it is definitely becoming, you know, an area of interest by investors and by regulators. Transition plans, corporate transition plans, financial institution transition plans, sovereign and sub-sovereign transition plans. Because unless you are planning, you do not know what kind of public money is available and how much of private money will be available or should be accessed through market for whether that’s energy or agriculture or water infrastructure, whichever sectoral targets you have for your green transformation. It will require that assessment of that pathway. It will require an assessment of the expenditures public. It will require an assessment of the extent of private monies that needs to be mobilized. And then will be your decision on what instrument you will use, whether it will be a green bond, whether you want a blended financing facility, whether you want, you know, much more of grant capital, because that is important for maybe to fund the disaster recovery, etc. All of these things should become a part of a plan. And that’s the next stage. That’s the next frontier, I think, at every level, all entities will have to undertake.

Sandeep Pai: I am so glad you brought this. Because one of my own frustrations with this whole, you know, side asking, like, you know, the rich countries are not paying us, they need to give is, I don’t sometimes, I struggle, even working in this field for so long now, struggle to understand for what, fund what? Like, I mean, we have a broad sense, you know, this, but where is that pipeline of projects? Where is the investment plan? It’s just something deeply frustrating when people say, oh, there’s like, you know, $100 million, OECD countries promised, but where’s the money? But I struggle with this. But anyway, so I concur with what you’re saying. One question I wanted to ask, and, you know, I’m just conscious of time, is I wanted to understand the role of regulations. From what I understand, the way you’re explaining is like, there’s a lot going on. Maybe there’s lack of coordination, or there’s a lot starting to happen, but there’s lack of coordination. I mean, this is not unique to climate finance in every field. You know, there are many players doing many different things with different methodologies. But that’s where I guess the regulators can come and systematize, you know, the methodologies and so on. So I wanted to understand the role that regulators like SEBI, RBI can play. And I know you have done a lot of work on this. So if you can sort of, you know, explain the role that regulators can play.
Neha Kumar: Yeah. Thank you for asking that question. And I’ll begin with a summary statement, which is that not only is it required a much more proactive role, but it needs to be in tandem. You know, the regulatory stack should be visible to investors and issuers and lenders and borrowers. Right. So currently, and it is, this role has also evolved, but I will focus on financial policy and regulation. And let us see who the actors are and what they’re doing and what needs to be done by current onlookers of the game. Okay. Now, as far as regulators are concerned, SEBI is our capital markets regulator. So the companies, et cetera, which play in the financial markets, you know, report to SEBI. It has come out with a whole lot of circulars guidelines, mandatory guidelines on green debt securities. And, you know, it has also included and expanded the definition of what will qualify in the green categories. And it is also, you know, even though lightly has touched upon instruments like transition bond and has said to companies that a transition plan is something that they will be, that they will desire. It’s not mandatory, but they have been, they have nudged in this direction. Now, RBI is an absolutely central entity for us, especia lly in India, because of banking sector being, playing such a huge role as, you know, which intermediates finance. Now, RBI, I have to say that it has really been not only progressive, but perhaps much more advanced than any other regulator on this topic. And why? And I think it is pretty straightforward for it. It looks at the risk side of things. It is looking at climate as risk sitting on loan books of banks. And if you take it at an aggregate level, then it becomes, it could become a risk to financial stability, right? So it is absolutely important for it to understand the, and estimate the climate risk sitting in the financial system and on individual banks, loan books and portfolios. That is why it is interested in tackling climate. And by the way, the first time that it was, that it started looking at it was through a sectoral lens. And that sector was agriculture. You know, our inflation basket has food as a major component. So, and we are, our southwest monsoon patterns have changed over a period of time. Productivity gets hit every time we have a good or a bad monsoon. The severity of floods and frequency of floods has increased. That is what was the initial, you know, initial point of entry for RBI, much more closely looking at climate change and climate change risk. And that was way back in 2021. Then it spread its gamut. And it started looking at both the physical risk as well as what we know as transition risks, which could be changes in policies and technologies and consumer choices. And how will they affect different sectors? And they are, it is doing a lot of work. It had come out with draft disclosure guidelines. In fact, now, those draft disclosure guidelines have undergone a feedback thing, feedback collection process. There are supposed to be templates coming out of it. But what has recently come out of RBI, it is very, very fundamental. And I am very, very pleased with what they have done recently. On 7th of October, they released draft guidelines, the full nomenclature. I am forgetting, Sandeep. But the main part which relates to our conversation is that they have now said that climate risk should be looked as part of credit risk. Now, what does that mean? It means that they are mainstreaming and assessment of climate risk by banks to understand how much of their loans are at risk. And which will allow banks to actually change the risk weights. And hence, either capital flow or capital provisioning within banks to those sectors or activities or projects. Now, this is very, very fundamental. And it’s fantastic that RBI has done it. It isn’t only looking at climate risk as a separate risk, but it is mainstreaming its assessment into credit risk. So it’s absolutely fundamental. And I think that will go a long way. And this similar thing has to be done by our insurance regulator. You know, there’s so many assets which will probably not even be able to be insured in the coming times. And they would also have a lot of data already, perhaps, on a lot of these parameters. But somewhere standardization has to happen. What kind of climate risk data has to come in? So RBI has done that thing. It is also in its facilitative role looking at promoting. I wouldn’t say promoting. I would say that making bankable projects come out with clear methodologies of emissions reduction so that lenders are informed of what and how the banks and regulated entities are doing this kind of calculation. So a lot of comparability will come through these measures. And this is what I will call building blocks. That is what RBI is currently engaged in. IFSC is another regulator. I’ll just finish in the last two sentences. IFSC is our financial regulator. Which is in the gift city. And they are very progressive. They are recognizing. They want to invite and attract a lot of international capital using sustainable finance as a strategy. So they’ve come out with transition finance framework. PFRD, which is pension funds. IRDAI, which is insurance regulator, are the ones which need to get into this discourse and need to now get fully involved in this. Ministry of Finance will be that anchor point in my view, which will bring these regulators together. Currently, it is involved in the development of taxonomy, which is basically the substratum of many of these, you know, regulatory interventions that are coming up that will need to come up and they will need to work in tandem with each other.

Sandeep Pai: Thank you. Thank you. Thank you. Thank you. You know, we could talk about this for a long time. I have so many questions and sub questions. But thank you so much. You know, we spent more than an hour and I learned a lot. And I’m very confident that many, many people in the field will learn a lot and, you know, will continue to follow your work. And we’ll have to have you back in a year or so maybe to talk about what happened. And so thank you once again.

Neha Kumar: Absolutely, Sandeep. And it was a great pleasure. And I really hope that, I mean, I touched upon a lot of things. I perhaps meandered a little bit. But an exciting space, not without challenges, but I’m absolutely certain that both government, non-government, think tanks, and especially the financial sector is going to take the bull by its horns. And the sooner it does so, the better of we are as a country and as a society.

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