Project Dissertation Report On

STUDY OF GREEN FINANCE ECOSYSTEM IN INDIA

Submitted by:
Aashish Sharan
Roll No: 2K18/MBA/020

Under the Guidance of

Prof. Archana Singh
DELHI SCHOOL OF MANAGEMENT

DELHI SCHOOL OF MANAGEMENT

Delhi Technological University
Bawana Road Delhi-110042
 CERTIFICATE

This is to certify that Mr. Aashish Sharan, bonafide student of Delhi School of
Management, Delhi Technological University, has successfully completed the
project work in the partial fulfilment of the requirement of Master of Business
Administration (MBA) program for the academic year 2018-20. This work is
his original work to the best of my knowledge & has not been submitted
anywhere else. The project work is titled as, “Study Of Green Finance
Ecosystem In India”

Signature of Head (DSM) Signature Of Guide

Prof. Rajan Yadav Prof. Archana Singh
Delhi School Of Management Delhi School Of Management
Delhi Technological University Delhi Technological University

ii
 DECLARATION

I hereby declare that the project report entitled “Study Of Green Finance
Ecosystem In India” submitted to Delhi School of Management, Delhi
Technological University, in partial fulfilment of the requirements for the award
of the degree of Master of Business Administration, is a record of original
dissertation work done by me, under the guidance and supervision of
Prof. Archana Singh

Student Name: Aashish Sharan

Roll Number: 2K18/MBA/020
Place: New Delhi

iii
 ACKNOWLEDGEMENT

This report bears sincere thanks to several people who have made contribution
towards its completion. My sincere gratitude to my Faculty mentor
Prof Archana Singh, at Delhi School of Management, DTU, who helped me at
all the steps to prepare this report, and with her guidance, I was able to do the
necessary work.

I extend my sincere gratitude and thanks to my friends and faculty for their help
and assistance during my project, without whom it would not have been
possible for the project to take its final shape.

Aashish Sharan
Roll Number: 2K18/MBA/020

iv
 Table of Contents

EXECUTIVE SUMMARY .................................................................................................................... 2

OBJECTIVES OF STUDY .................................................................................................................. 3
1) INTRODUCTION .......................................................................................................................... 4
(1.1) TIMELINE OF GLOBAL SUSTAINABILITY INITIATIVES ................................................ 7
(1.2) GREEN FINANCE .................................................................................................................. 9
(1.3) ECOSYSTEM OF GREEN FINANCE................................................................................ 12
2) LITERATURE REVIEW ............................................................................................................. 13
3) RESEARCH METHODOLOGY ................................................................................................ 16
4) DATA ANALYSIS ....................................................................................................................... 17
5) KEY LEARNINGS ............................................................................................................................. 21
(5.1) CONSTRAINTS FOR GREEN FINANCING ..................................................................... 21
(5.2) STEPS TAKEN (BY INDIAN FINANCIAL SYSTEM)....................................................... 23
6) RECOMMENDATIONS ............................................................................................................. 28
7) REFERENCES ........................................................................................................................... 30
EXECUTIVE SUMMARY

Green Finance is a new term but it is gaining importance with time. The
reason behind its rising importance is because of rapid change in the
climatic condition not just in one particular area but all over the world.
The temperature of world is rising which is causing the ice around poles
of earth to melt. The melted ice is raising the levels of sea. Along with
that green house gases emitting from industries & plants is polluting the
air, water & land. Chemicals & drain from these units is causing harm to
local population. The harmful effect is not just felt by humans but
animals have also became victim of that. Many species have been lost
due to its & many more are on the verge of extinction.

Green finance in this situation is promoting investments which are

environment friendly. All those units which are producing harmful
downstream components if their funding part is made costly the profit
margin will be less & at the same time if the cost of capital for green
projects is less as well as easily available investors will shift to investing
in those projects. As they are making good profits as well as saving the
environment

Though Green finance seems to be a very noble idea there are many
challenges to it. Otherwise it would have not been still in nascent stage.
Fluctuating policies makes investors uncertain about the outcome of
what he is investing so he refrains himself to get into such terrain.
Although a lot has been done if we compare the situation from earlier
times but still it is just the beginning.

2
OBJECTIVES OF STUDY

The objective of this study is;

1) To understand the various green financing steps taken by public

and private sector organisations/banks in India.
2) To understand the future scope of Green finance in India.
3) To scrutinize various challenges which belong to Green finance in
India.

3
1) INTRODUCTION

For generation of employment, reduction in poverty & rise in the

standards of living, economic growth is a necessary thing. Without it we
will be not able to achieve it. The traditional method which we are
following exploits the natural environment. It brings in climate changes
which will affect future generations.

The climate change phenomenon has led to a ruthless cycle of negative

consequences. Our economy, social structure and environment are
being affected by it. This global phenomenon of changing climate needs
urgent attention. It is because the people of the world are today
experiencing very high temperatures like never before. Along with these
intense heat waves, wildfires, storms and floods are also becoming very
frequent because of climate change.

Climate has become one of the top international issues at various

platforms around the globe. It is because the countries have started
giving attention to it. The Paris Agreement was signed in 2015 between
195 nations with an aim to limit the rise of world’s temperature by less
than 2ºC and as close as possible to 1.5ºC above preindustrial level, by
the year 2100.

Also the Paris Agreement will add to the capacity of countries in dealing
with the harmful effects of climate change. These goals are ambitious so
financial inflow, technology & supportive framework should be put in
place to support developing countries.

It’s a global challenge to achieve sustainable development along with

the traditional means by which we achieve economic growth. More &

4
more people are becoming concerned about environment. So the
finance sector should also check its role & be concerned about these
environment issues. IPCC (Intergovernmental Panel on Climate
Change) says that amount of $ 4 Tn is needed approx. This much
amount is required to be invested in systems related to energy to
achieve our goals.

In the years to come role of financial sector is pivotal for the sustainable
development of world. Whether it’s Asia or Europe funding is required to
achieve these targets of 2030.

Our goal of achieving sustainable & environment friendly growth can be

achieved with the help of green finance. The funding is done by green
financial instruments like green bonds etc. These funds are further
invested in those projects which are environment friendly & promotes
sustainable development.

Innovations which are driven by market are driving the development of

green finance. As per World Economic Forum (WEF) developing
countries comprises majority of the funding which is to be done. Approx
$5tn/Yr of funding is required till 2030 to reach the targets. India
particularly needs $4.5tn by 2040 of funding. These funding will be used
for green energy production, EVs & housing.

The Intended Nationally Determined contribution (INDC) has been

submitted by India in Paris agreement which consists of 17 sustainable
development goals. Large amount of investment is necessary to achieve
those goals. Its estimated that funding of approx $ 2.5tn (2014-15 prices)

5
will be required. This amount of funding will help to meet the targets of
2030.

Public financing is not so strong as India is a developing country & will

not be able to finance it properly. Private financing is required to achieve
the goals of Paris agreement & 17 SDGs. Green finance is something
which is making financial sector to fund & invest in those projects which
are not harmful to environment & helps in sustainable development. It
includes both private & public sector.

People bank of china published a report “Establishing the China Green

Financial System”. It said that approx 85% - 90% of funding required has
to be from private sector. So the role of private sector becomes very
important for green financing.

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(1.1) TIMELINE OF GLOBAL SUSTAINABILITY INITIATIVES

1987, Montreal
Protocol

1988, IPCC
Established

1992, Rio Summit,

UNFCCC Established

1997, Kyoto
Protocol

2000,Millenium
Declaration

2001, Marrakesh
Accord

2005, REDD
introduced

7
 2007, Bali
Roadmap

2009, Copenhagen
Accord

2010, Cancun
Accord

2012, DOHA
Agreement

2015, SDGs
Launched

2015,Paris Accord

8
(1.2) GREEN FINANCE

Green finance has not been defined in a precise & commonly accepted
manner, the proposed definitions given by different entities vary
significantly. Repeatedly the terms Sustainable Finance, Green finance,
and Climate Finance are used as synonyms. Some times ESG
(environmental, social, and governance) is additionally treated as green
finance.

Some of the Definitions are;

Organisation for Economic Co-operation and Development (OECD):

Green Finance is finance for “achieving economic growth while reducing
pollution and greenhouse emission, minimising waste and improving
efficiency within the use of natural resources.”

World Bank:
“Growth that’s efficient in its use of natural resources, clean in this it
minimizes pollution and environmental impacts, and resilient in this it
accounts for natural hazards and therefore the role of managing
environment and natural capital in prevention of disasters”.

SOURCE: UNEP Inquiry

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 SUSTAINABLE
DEVELOPMENT

ENVIRONMENTAL SOCIAL GOVERNANCE ECONOMIC

CLIMATE CLIMATE
OTHER
CHANGE CHANGE
ENVIRONMENTAL
MITIGATION ADAPTION

LOW CARBON
CARBON

CLIMATE
CARBON

GREEN

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 SOCIOENVIRONMENTAL

SUSTAINABLE

SOURCE: UNEP Inquiry

Sustainable Finance covers a broader set of investments with the aim

to build an inclusive, economically, socially, and environmentally
sustainable world.

Green finance includes climate finance but also includes other

environmental objectives necessary to support sustainability, particularly
aspects such as biodiversity and resource conservation.

SOURCE: UNEP Inquiry

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(1.3) ECOSYSTEM OF GREEN FINANCE

Objectives:

Sustainable growth

Environmental protection

Low-carbon transition

Climate adaptation & mitigation

Participants:

Development financial Institutions

Governments

Financiers

Project Developers

Benefits:

Reduction in pollution & GHG emissions

Sustainable use of natural resources (air, water, soil)

Build resilience

Mechanisms:

Financial
Regulatory
Policy
Market
Technology

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2) LITERATURE REVIEW

Research Paper :

Green Banking in India: A Study of Various Strategies Adopt by

Banks for Sustainable Development
Author: Dipika (2015)

This paper is an attempt to understand how banks operating in India

have come out with green banking strategies. It’ll explore the challenges
in implementing of green banking in India. It also attempts guide about
the actions which should be taken for proper execution of green banking.

The working of Banks has undergone many improvements. Better

management, Cost effective operations, Risk mitigation, Bad loan
management, Profitable investments, Compliance with laws &
regulations etc. All of these have improved the customer serviceability &
satisfaction.

Green banking reduces the amount paper work as much as possible and
uses online/ electronic mode for transaction processing. Less paperwork
will create awareness among people & make them responsible about
environment. Less paper work will save trees also.

Benefits:
Less Credit risk, Legal Risk & also Reputational risk, Avoids Paper work,
Creates Awareness to business people about environment, loans at
comparatively lesser rates, and Environmental standards for lending
together with other benefits also.

13
Green Banking in India:
RBI’s document named ‘Policy Environment’ speaks about Green
Banking & information technology initiatives for the banking sector in
India & how the computer systems are helping banks to go for green
banking & reduce paper works.

It’s reducing the paper work on all levels by bankers similarly customers
which is reducing the value(cost) of operations saving time & increasing
customer satisfaction.

Socially & environmentally responsible financing is making banks to

have competitive advantage. It is because of the changing attitude of
society towards environment.

Banking services like ATMs, VISA & Master Card, Credit Card, Gift card,
Online Banking Services & Mobile Banking all belong to the steps of
green banking.

Different banks in India have taken different initiatives within the field of
green banking.

SBI: Funding of green power initiatives. It came up with Green channel

Counter at their branches in place of paper based operation & services
of banking. Will generate green power for its branches at certain
locations during the JV.
It has also given its affirmation to fund those initiatives which are
sustainable & environment friendly. It comes under “Carbon Disclosure
Project”. They will implement this to various branches of the country.

14
Indus-Ind: It has come up with Green Office Project. In this the bank is
able to save by installing solar powered ATMs. These ATMs are saving
cost by reducing bills.

YES Bank: Funding of projects related to alternative energy

HSBC: Different targets has been formulated for data centres. It will inc.
efficiency. It will also decreases operational impact on environment.
Further it will reduce cost.

IDBI: Clean Development Mechanisms (CDM) is the field in which the

bank is providing many services.

15
3) RESEARCH METHODOLOGY

The previous section was all about introducing the concept of green
finance so that we have some background information before going any
further.

This section is regarding how I have conducted the study has been
discussed. Generally research is conducted by Quantitative means or
Qualitative means. In qualitative type every argument is backed by
analysis of data after performing some calculations. In case of qualitative
method existing data is used & analysis is done on the basis of that no
statistical calculation is done.

This study belongs to second type or can be said as descriptive in

nature, which is based on secondary data.

The data regarding the study has been taken from various government
reports, reports published by banks etc. Also for understanding the
challenges of green finance I have taken references of various case
studies, research papers, related news articles etc which helped me to
understand it properly.

16
4) DATA ANALYSIS

This section talks about the present status with respect to the targets
which we have to achieve. Based on this we can understand that we are
far behind where we should be. Also this section shows the amount of
fund committed by different groups for this purpose & how they are not
enough.

India’s INDC builds on its goal of installing 175GW of renewable energy

by 2022. This new target will increase the share of renewable power
capacity to forty percent by 2030.

Present Status
Thermal 230701, 63%
Renewable 85908, 23%
Hydro Power 45399, 12%
Nuclear 6780, 2%

Achievement of these targets will be very difficult as per the data.

Though India is not obligatory to it but it should try to achieve these
targets because the climatic conditions are deteriorating. Public finance
is the prime source of funding for these activities. But the government is
functioning under large fiscal deficit. Due to it funds availability becomes
an issue.

Development of green finance system in the country is very important

because India is now under middle income group. This categorization is
done by world bank, so now because of that flow of funds will be
affected.

17
It has been estimated that amount of approx 450 Mn USD each year will
be required. This expenditure has to be done for 10 Yrs to meet the
targets.

The initial target of installing of solar power plants of 20 GW has been

increased to 100GW.This target has to be achieved by the year 2022.

The INDC also commits to reduce India’s GHG emissions intensity per
unit GDP by 33 to 35 percent below 2005 levels by 2030. It also aims to
create sink for carbon of amount approx 2.5/3bn tonnes of carbon
dioxide by planting more no of trees.

Installed Grid Interactive Renewable Power Capacity (excluding

large hydropower) in India (31.12.2019)

139.8

9861.31 Wind Power

4671.55

Solar Power

37505.18
Small Hydro Power

Bio Power (Biomass &

Gasification and
33712 Cogeneration)

Waste to Power

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(4.1) Pledge By Different Financial Institutions for Renewable
Energy

A fund of approx $2.57 bn has been committed by different financial

institutions which includes private & public banks, non banking financial
institutions etc.

Bank Share of Total Committed Amount

(%)

SBI 12.6
IREDA 10.9
Yes Bank 10.2
Indus bank 9.3
India Infra debt 8.2
PTC India Financial Services 5.4
Union Bank of India 5.3
Bank of Baroda 4.2
IDFC 20.2
L & T Finance Holdings 13.7

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(4.2) Green Bonds Issuance in India

Green Bonds are fixed income debt instruments so that the fund issued
from these instruments will be used for green projects, like wind & solar
energy plants. Also those projects which are environment friendly &
reduce greenhouse gas emissions.

Examples of green bonds issued,

• Ist Green Bond Issued By Yes Bank 100Cr

Feb 2015

• Ist Green masala bond issued By IFC 315 Cr

Aug 2015

• IDBI issued USD 350Mn on Singapore Stock

Nov 2015 Exchange

• Axis Bank USD 500Mn on London Stock

Jun 2016 Exchange

• NTPC Ltd offer Green Masala Bond & raised

Aug 2016 2000Cr

• L&T issues green bond & raised USD1.3 Mn

Jul 2017

• SBI raised USD 650 Mn

Sep 2018

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5) KEY LEARNINGS

(5.1) CONSTRAINTS FOR GREEN FINANCING

Stable Policy and Regulatory Framework:

Investors belonging to private sector are not interested in investing there
is instability regarding policies of Government. Unpredictable policy is
risky for investors which look for certain returns from investments. There
should be stability in the policies which layout instruction, assurance and
encourages the prospective investors for long term investments.

An Environmental Performance Disclosure:

Disclosure and reporting about the environmental performance of the
firms is essential for green financing. Investors who are responsible
refrain from investing because they have less information about the
compliance of firms to its environmental commitment.

Low Profitability of Green Industries:

Private sector is more inclined to make investment in traditional
industries because of less cost and higher return in comparison to
green industries. Also Green investments are generally of longer
duration which makes it less attractive & more risky for investment
purposes.

Viability Mechanism of Green Industries:

Green projects look less viable than commercial projects to investors
who look for a positive NPV projects to invest in. A lack of proper
mechanism which is able to measure the viability of project is keeping
investors not interested towards green projects.

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Less Awareness among Consumers for Green Products:
Private sector will produce green products only when there is sufficient
market for that. Due to the lack of information to people that how much
these products are important they don’t buy it.

Less Awareness among Investors about Green Finance:

Besides low profitability, a major issue is lack of importance &
information about green finance among investor. Also investment in
energy efficiency technology and solar energy etc. are considered as
cost, not investment.

Less availability of products of green finance:

Limited number of green financial products is also a major obstacle for
the development of green finance.

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(5.2) STEPS TAKEN (BY INDIAN FINANCIAL SYSTEM)

1. ESG INDEX IN INDIA

S&P BSE 100 ESG Index

The index was launched in 2017. Presently it has 64 constituents. It has
been formulated to measure the performance of stocks which have been
compliant with the requirements of sustainable investing. Some of the
firms are Reliance Industries, HDFC, Infosys, TCS, Bharti Airtel, SBI,
Asian Paints etc.

1.70%
1.60% Financials
3.40%
5.70% Information technology
Energy
Consumer staples
6.70%
36.70% Consumer discretionary

6.80% Materials
Healthcare
6.80% Communication services
Utilities
14.60% Industrials
16%

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S&P BSE CORBONEX-
It was launched in 2012. It measures the performance of the companies
in the S&P BSE 100. The relative carbon performance of companies is
the basis on which weights of the index is modified. It has 98
constituents as of now. Some of those are Axis Bank, Larsen & Toubro,
ITC, ICICI etc.

S&P BSE GREENEX-

It was also launched in 2012.It measures the performance of 25
companies which are green. The companies are selected based on
GHG emissions, Liquidity & market cap. It’s a float-adjusted market cap
type index. Some of them are Sun Pharmaceutical Industries, Dr
Reddy’s Laboratories, Maruti Suzuki, Titan Co, Kotak Mahindra Bank
etc.

Nifty 100 ESG-

It reflects the performance of companies in nifty on the basis of ESG.
The weight of each company in the index is based on ESG score of that
company. The index revision is done on semi annual basis.

MSCI ESG India Index

MSCI consists of large cap & mid cap stocks of Indian market. It has 84
stocks which is approx 85% of equity market of India. The ESG index
provides investors information about stocks which are complying with
environment norms.

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2. GREEN BOND MARKET IN INDIA

• Proceeds are used to finance the green projects for generating

green energy & reduce emission.

• IREDA has launched loans and raised $91 million for renewable
energy using bond issue in 2013. It has issued 150 Mn USD tax-
free green bond.

• IREDA has launched India’s first green bond to support renewable

energy.

• First INR denominated green bond issued by YES bank

• New norms for listing & issuance of green bonds introduced by

SEBI in 2016

• RBI introduced Corporate Bond measures in 2016

• India ranks 5th in G20 nations in terms of debt issued as green

bonds with respect to total debt issued.

• Green bond share approx 1% of the total debt globally the same is
0.35% for India.

• Most of the fund has been moved towards renewable energy.

Avenues like water, green transport, and energy efficiency has
received meagre investments @

25
3. OTHER INITIATIVES BY GOVERNMENT

• The coal cess has been raised from INR50 a ton in 2010 to
INR100 in 2014, INR200 in 2015, finally INR 400 a ton in 2016.
The cess collected is transferred to National Clean Energy and
Environment Fund (NCEEF) which will fund research and
innovative projects related to clean energy. Although most of the
fund collected form cess has not been transferred to NCEEF & has
been used to meet GST shortfall. The NCEEF fund is also under
utilized & the money is kept ideal.

• The companies act 2013 mandates companies to spend 2% of

their avg. 3 Yr annual net profit towards CSR activities in a given
financial year. Though compliance has been an issue.
Encouraging firms to spend in clean energy projects is a win-win
situation for both the parties. It will reduce the cost of energy
expenses for firms as well as it will help government to reach the
target of 175GW production.

• Removal of priority lending limit for renewable energy sector. It will

help large investors to easily raise more money for funding these
projects. It will be a boost for green economy. It will also
encourage manufacturing in renewable energy sector.

26
• National Environment Policy (NEP) 2006
• National Action Plan on Climate Change (NAPCC)
• State Action Plan on Climate Change (SAPCC)
• Energy Conservation Act
• National Electricity Policy (NEP) Integrated Energy Policy (IEP)

27
6) RECOMMENDATIONS

A stable policy framework should be brought up by the government for

green finance. It will motivate & encourage investors belonging to private
sector to finance projects of sustainable development.

More ESG (Environmental, social & corporate governance) index should

be there which would represent environmental performance of
companies.

Just like we have rating agencies for bonds & institutions, there must be
agency which gives rating on the basis of green energy produces or
consumed.

Intervention by government should be there to increase the profits of

green projects. It can be done by decreasing the cost of green projects
by providing tax benefits, subsidised tariff charges, cheaper loans. The
government can meet the shortage of this revenue by charging higher
taxes to polluting firms thus increasing their cost of investment.

A standard mechanism should be developed to evaluate the projects

and business in terms of environmental, social and governance (ESG)
risk with the objective to give more emphasis on environmental risk.

MSMEs (medium, small and micro enterprises) share 45% of the total
manufacturing output which is approx 7-8 per cent of India’s GDP. By
providing more funds & financial support to msme they can have access

28
to energy efficient technologies. It will help to reduce pollution as well as
their productivity.

There should be awareness campaigns about green finance & how it is

vital for the sustainability of economy. Various marketing tools should be
used to provide info about the energy efficient technologies, & why
green products are essential. It will help in building responsibilities in
people

We should use financial engineering to provide different types of green

financial products to investors so that they can do investment easily.

29
7) REFERENCES

• www.unenvironment.org
• www.mnre.gov.in
• www.adb.org
• www.acraa.com
• www.millenniumpost.in
• www.gtllimited.com
• www.niftyindices.com
• www.asiaindex.co.in/indices
• Design Of sustainable finance system (UNEP), Sep 2016
• Promoting Innovative Green Financing Mechanisms for
Sustainable and Quality Infrastructure Development in the
APEC Region, Aug 2018
• Fostering Green Finance For Sustainable Development In
Asia, Mar 2018
• Green finance: Fostering Sustainable Development In
India,
• Babita Jha, Priti Bakhshi, Nov 2019

30