Green Finance: the Way Forward
The year 2024 has been the warmest year so far in the history of the planet Earth. The apprehension that each successive year may exceed the previous one in severity poses a genuine and pressing threat. The atmospheric concentration of Greenhouse Gases (GHGs) like carbon dioxide, methane, and nitrous oxide reached the highest levels. The ill consequences of the extreme weather conditions can be felt in all parts of the globe. From floods and wildfires to prolonged droughts and rising sea levels, the adverse impacts are being felt in every region. In this critical context, the urgency and importance of Green Finance have never been more evident.
As per the Fossil Finance Report 2025 on The Banking on Climate Chaos, published in June 2025, in 2024, global banks walked back many of those climate pledges and significantly increased their fossil fuel financing, including ramping up finance for fossil fuel expansion. It further reports that the 65 biggest banks globally committed $869 B USD to companies conducting business in fossil fuels in 2024. The 65 biggest banks globally committed $429 B USD to companies expanding fossil fuel production and infrastructure in 2024. Over $2/3$ of banks covered in the said report (45 banks) increased their fossil fuel financing from 2023 to 2024. 48 of the 65 banks increased fossil fuel expansion finance from 2023 to 2024.
In this background, green energy is increasingly gaining importance. Green Finance means lending to and/or investing in the activities/projects that contribute to climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives, including biodiversity management and nature-based solutions. Climate mitigation and adaptation are two distinct, yet interconnected, approaches to address climate change.
- Mitigation focuses on reducing greenhouse gas emissions to prevent or slow down climate change (Example, transitioning to renewable energy sources, improving energy efficiency, promoting sustainable land management practices, and developing carbon capture technologies).
- Adaptation involves adjusting to the unavoidable effects of climate change that are already occurring or are projected to occur in the future (Example, building sea walls to protect coastal areas from rising sea levels, developing drought-resistant crops, implementing early warning systems for extreme weather events, and improving infrastructure resilience to climate impacts).
Emerging Sectors
As the concept of green environment is increasingly finding importance, the newer areas for green financing include:
| Sector | Description |
|---|---|
| Renewable Energy |
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| Energy Efficiency |
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| Clean Transportation |
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| Climate Change Adaptation |
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| Sustainable Water and Waste Management |
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| Pollution Prevention and Control |
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| Green Buildings |
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| Sustainable Management of Living Natural Resources and Land Use |
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| Terrestrial and Aquatic Biodiversity Conservation |
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Risks
The green financing comes with its own risks. The biggest risk in Green Lending is the risk of "Greenwashing" by organisations. "Greenwashing" means the practice of marketing products/services as green, when in fact they do not meet the requirements to be defined as green activities/projects. Globally, many large organisations have faced the issue of Greenwashing, and this creates a huge reputational risk for the organisations. Financial Institutions also have the responsibility to ensure that they finance only such eligible projects as green and do not end up supporting Greenwashing in any manner. To mitigate the risks of greenwashing, the following approaches are adopted internationally:
- Alignment with Green Taxonomy: A green taxonomy is a framework that defines what constitutes an environmentally sustainable investment or economic activity. It's a classification system used to identify and categorize investments that align with specific environmental objectives, like climate change mitigation or sustainable water management. For example, EU taxonomy. The Government of India has released a Draft framework on Climate Finance Taxonomy, inviting public feedback.
- Third party assurance/Certifications: Banks/Lenders insist on third party certifications such as Green Building certificates, Forest Stewardship Council (FSC) Certificate, etc.
- Periodic Impact reporting: Assess the impact associated with the funds lent for or invested in green finance activities/projects through an Impact Assessment Report by external parties.
- Greenwashing guidelines: Many countries have issued detailed guidelines on what is considered greenwashing and their penal provisions. In India, the Central Consumer Protection Authority has issued guidelines on the Prevention and Regulation of Greenwashing or Misleading Environmental Claims.
"Financial Institutions also have the responsibility to ensure that they finance only such eligible projects as green and do not end up supporting Greenwashing in any manner."
Challenges to the Financiers
The biggest challenge to the banking sector in terms of green financing is that as most of the projects are long term in nature they lead to mismatch in the Asset Liability Management (ALM). But for the large Indian banks, the smaller banks have limitations in this regard. Most of these projects are in the renewable energy sector which are dominated by the large corporates. The third party certification involves additional costs. This severely limits the ability of the retail/ SME/agri-borrowers from being able to classify their accounts as being eligible for the green finance. Further, the emerging technologies are very expensive, and the risk of their becoming obsolete faster is very high. The banks are obviously wary of financing such nascent-stage projects.
The Regulatory Framework
The Regulatory Framework on Green Financing has also evolved over a period of time. Presently, the major regulations are listed below:
- Framework on issuance of listed green debt securities; Issued in 2017 & updated in 2023 by SEBI: The updated framework on the issuance of listed green debt securities aligns with the Green Bond Principles recognized by the International Organization of Securities Commissions (IOSCO) and reflects India's growing emphasis on sustainable finance. It outlines detailed initial and continuous disclosure requirements for issuers of green debt securities.
- Framework on Sovereign Green Bonds; Ministry of Finance, November 2022: The issuance of Sovereign Green Bonds will help the Government of India (GoI) in tapping the requisite finance from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy.
- Framework for acceptance of Green Deposits; RBI, April 2023: The Framework for Acceptance of Green Deposits issued by the Reserve Bank of India (RBI) establishes guidelines for regulated entities (REs), such as scheduled commercial banks and deposit-taking NBFCs, to offer green deposits from June 1, 2023.
- Draft framework on Climate Finance Taxonomy; Ministry of Finance, May 2025: The objective of this draft is to facilitate greater resource flow to climate-friendly technologies and activities. It will classify activities under categories of mitigation, adaptation, and transition support, ensuring inclusivity, particularly for MSMEs, and preventing greenwashing.
Chartered Accountants in ESG, Impact, and Green Finance
The increasing and evolving role of Chartered Accountants aligns with the global priorities such as sustainability, responsible investing, and climate action. The emerging green finance opens doors of opportunity for the profession. Today's CAs are increasingly involved in Environmental, Social, and Governance (ESG) assurance, offering credibility to non-financial disclosures and sustainability reports. With expertise in risk assessment, control systems, and ethical compliance, the profession plays a vital role in impact reporting, where transparency and accountability are of utmost importance. Additionally, with the rise of green bonds and climate-linked investments, CAs are emerging as key players in green finance verification, ensuring that funds raised are used for genuinely sustainable purposes. Today, Chartered Accountants are not just stewards of financial accuracy but also change makers for sustainable value creation.
Concluding Thoughts
In conclusion, driven by the fundamental instinct for human survival, green financing is poised to witness continued growth. While this trajectory presents a range of complex challenges, it also signifies a critical and inevitable shift toward a more sustainable future. Despite the obstacles, it is evident that this is the direction in which our collective future lies. We must pass the hurdles for a greener future and make this planet a better place to live for humans.