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Top Five Upcoming Industry Trends In Sustainable Finance Projects
(Dr. Pawan Singh is MD & CEO of PTC India Financial Services. He was a member of the IRAS and holds MBA and PhD in management and has 34 years of experience in finance including infrastructure finance. He has handled high/Board level responsibilities in leading PSUs and now heading leading NBFC working in area of green infrastructure finance. He has been responsible for the turnaround of power companies from loss-making to dividend-paying companies).
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During the brainstorming session in 2021 at Glasgow, Prime Minister Narendra Modicommitted to achieving net-zero emissions by 2070. India has commenced its journey toward carbon neutrality and put forward a 'Green Deal' which is an enabler to accelerate decarbonisation. In the Union Budget, the government announced its intention to promote green bonds to support investments in climate-friendly projects.
The attractivity of sustainable investment products originates from the simple fact they outperform conventional products in the long run.More investors are now thinking about the environment more than ever before since the COVID-19 pandemic hit and are also starting to recognize the vital role that financing will play in facilitating the low-carbon transition.
With a lot of expectations around achieving low-carbon transition through sustainable infrastructure, let’s look at the latest trends in sustainable finance projects. These trends will give a better picture of the near future in green finance and sustainable infrastructure.
Better data metrics on climate impacts
Much of the data financial institutions use today focuses on what happened in the past, but these are no longer a good indicator of what will happen or what needs to happen to avoid one. Forward-looking metrics can help assess investment risks and opportunities through the net-zero transition, such as assessing how companies or individual assets are likely to fare in the transition. For example, there are tools to analyse forward-looking emissions scenarios to make investment decisions today.
Turning away from fossil fuels to achieve net-zero carbon emissions
The increase in demand for sustainable finance has naturally coincided with moving away from funding fossil fuel projects. In addition to governments and international institutions, several banks and major financial institutions have agreed to end the funding of coal at the Glasgow conference in 2021. Pledging to achieve the net-zero carbon emissions status by 2070, a climate action plan has been put into action with a near-term target of increasing its non-fossil fuel energy generation capacity to 500 GW and meeting 50% of its energy requirements from renewable energy by 2030. Financial regulators such as the RBI and SEBI will continue to enable the creation of a financial ecosystem that will channel private investments from both domestic and international institutions. This is good for the green infrastructure financing sector in terms of both, growth, and investment opportunities, which will undoubtedly create long term value for investors and the nation alike.
Electric Vehicle Mobility adoption to surge
Electric vehicles (EVs) present an opportunity of almost Rs 3 lakh crore for various stakeholders in India in the five years through fiscal 2026. EV adoption will continue to surge as more people will shift from internal combustion engine (ICE) vehicles. Data on the Vahan portal showed the share of electric three-wheelers (3Ws) increased to almost 5% of 3Ws registered in fiscal 2022 from less than 1% in fiscal 2018. Rising fuel prices and higher cost of ICE vehicles are impacting their affordability, and government support for EVs is also playing a role.
Bring Indian economy’s carbon intensity low using Solar Power
To bring down the Indian economy’s carbon intensity below 45 percent by 2030, India will need to substantially augment its solar power generation capacity and develop green hydrogen infrastructure, a technology that has the potential to meet 19% of the industrial sector’s future powerrequirements in the country. The scale of investment needed becomes clear when one considers that infrastructure spending on building green energy infrastructure will account for 5% of India’s GDP till 2030. A significant part of this lending will be towards ramping up India’s existing solar power generation capacity to 450 GW from its current level of 101 GW and investing in power grid up-gradation across the country.
New investment vehicles like SPAC will pick up
Traditionally, infrastructure projects have been funded through debt. However, investment vehicles like special purpose acquisition companies (SPACs) have allowed companies to raise capital offshore. While technology is also playing a key role in making infrastructure financing transparent in terms of managing data and increasing accessibility.
In the future, we expect to see more growth, particularly in the Asian market owing to more regulations, standardization, and innovation around available products, especially around sustainability-linked products to drive real change in green finance.