Report on stakeholder consultation for financing ecosystem transition to a Just Transition
India stands at a crucial crossroads in its mission towards a low-carbon economy. The acceleration of climate commitments necessitates a shift that is not only environmentally sustainable but also socially just. This means that as the country moves away from fossil fuels, it must ensure inclusivity, equity, and support for workers and communities relying on carbon-heavy industries like coal, steel, cement, and automotives. This is especially critical in states such as Jharkhand, Odisha, and Chhattisgarh, where the economy and people’s livelihoods are deeply intertwined with fossil fuel-dependent sectors.
A robust and all-encompassing financing system is vital in managing risks associated with this transition and capitalizing on new opportunities. Although India has made strides in sustainable finance, there is still a gap in financing the social aspects of transition, such as reskilling workers, building community resilience, and diversifying regional economies. This report delves into how India can structure a financing ecosystem for a Just Transition (JT) that balances environmental goals with socio-economic inclusivity.
The JT financing ecosystem comprises various stakeholders, including government bodies, financial institutions, corporations, and civil society. Each of these stakeholders plays a distinct role that is interconnected with others. Regulatory bodies like the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) hold the responsibility of aligning financial activities with sustainability objectives, while government ministries like the Ministry of Finance (MoF), Ministry of Environment, Forest and Climate Change (MoEFCC), and NITI Aayog establish the strategic and fiscal frameworks for transition.
Capital can be mobilized through a mix of public and private sources, including banks, non-banking financial companies (NBFCs), multilateral development banks (MDBs), and impact investors. Ministries can influence investment directions through blended finance instruments and incentives. Corporations, especially in high-emission sectors, are pivotal for implementation and play a crucial role in the transitioning process.
Through a stakeholder mapping exercise employing an Interest-Influence Matrix, key players like RBI, SEBI, MoF, and state governments emerged as having high influence and interest in advancing a JT. Other potential allies, such as banks and ministries related to coal or micro, small, and medium-sized enterprises (MSMEs), possess financial power but have limited involvement currently. Civil society and think tanks serve as essential advocates for inclusion and equity.
Structured consultations and high-level roundtable discussions with stakeholders provided insights into ongoing and forthcoming JT initiatives. These interactions highlighted key drivers, obstacles, and collaboration opportunities to fortify India’s JT financing ecosystem and shape actionable recommendations.
SEBI has initiated steps towards incorporating sustainability in corporate reporting but lacks a mandate for reporting on JT indicators. Expanding frameworks like the Business Responsibility and Sustainability Reporting (BRSR) to encompass social risks and JT disclosures could channel investments towards firms with credible transition strategies. The RBI, through its Sustainable Finance Group, has made progress in climate risk management but is yet to recognize JT as a significant financial risk. Tools like Priority Sector Lending (PSL) and green deposits could be adapted to support JT-aligned investments in vulnerable regions. The MoF has a pivotal role in embedding JT principles into India’s economic and fiscal frameworks. It can allocate resources, establish a dedicated JT Fund, and integrate JT into national green taxonomies. Similarly, the MoEFCC can ensure alignment of JT initiatives with environmental policies and utilize international funds to drive workforce transitions and community resilience in regions dependent on fossil fuels.
Corporates are gradually integrating JT considerations into business strategies but face challenges like high transition costs and supply chain constraints. Clear policy guidance, supportive regulations, and engagement with investors are crucial for addressing these hurdles. The demand for incorporating social metrics in ESG frameworks and incentivizing green innovation is also on the rise.
A strategic roadmap delineates actions for various stakeholder groups across short-, medium-, and long-term objectives. This roadmap proposes a phased strategy to embed JT principles into India’s financial and policy landscape. Successful coordination among ministries, regulators, government bodies, corporations, and civil society, coupled with investments in capacity development, financial innovation, and inclusive planning, will ensure India’s transition to a net-zero economy is both just and equitable.