Recommendations for improving capacity in the financing ecosystem for Just Transition

The move towards a low-carbon economy in India necessitates a financing strategy that is sustainable, inclusive, and capable of addressing regional, social, and economic disparities arising from decarbonization. While there have been positive efforts by various stakeholders to support a Just Transition (JT), there are still notable capacity gaps within the financing ecosystem that need attention. This article aims to shed light on these gaps and put forth recommendations to tackle them.

In order to evaluate these capacity gaps comprehensively, a structured approach was employed. Initially, a scoping exercise was conducted to map the existing capacities of stakeholders and analyze their ongoing initiatives in alignment with JT principles. This was followed by detailed consultations with stakeholders to validate the findings. Subsequently, a roadmap was developed based on these consultations to bolster the JT financing ecosystem. This roadmap was crucial in identifying capacity gaps and formulating targeted recommendations.

Assessment of Stakeholder Initiatives and Current Capacity Landscape revealed a growing but limited momentum among key actors in integrating JT principles into their frameworks and operations. For instance, the Securities and Exchange Board of India (SEBI) introduced the Business Responsibility and Sustainability Report (BRSR) Core framework, while the Reserve Bank of India (RBI) is moving forward with climate-related financial disclosures. The Ministry of Finance is actively participating in global discussions on the social implications of a green transition. The Ministry of Environment, Forest, and Climate Change (MoEFCC) is incorporating JT principles into national climate policies, with support from NITI Aayog in developing JT financing roadmaps. Additionally, corporates and financial institutions are establishing Environmental, Social, and Governance (ESG) committees, enhancing sustainability disclosures, and utilizing people-centric financial instruments like social bonds and sustainability-linked bonds.

Capacity Building Discussions Between Stakeholders delved deeper into the needs of stakeholders and highlighted gaps in technical expertise, inter-agency coordination, and access to practical tools. Stakeholders expressed the need for training on financial instrument design, integration of social and climate risks, and project-level planning for reskilling, rehabilitation, and community development. They also sought exposure to global best practices and guidance on aligning their mandates with JT objectives.

The Just Transition Financing Ecosystem Improvement Roadmap identified key areas where the institutional capabilities needed strengthening, such as establishing inter-ministerial coordination mechanisms, developing technical expertise for designing financial instruments, supporting state-level actors in embedding JT objectives, and implementing robust data systems for tracking socio-economic impacts. This roadmap guided the identification of capacity gaps and efforts to enhance the coherence and effectiveness of JT financing.

Critical capacity gaps hindering the effective design, deployment, and governance of JT-aligned financial instruments and strategies were identified. Stakeholder-specific recommendations were developed to address these gaps and build institutional and technical capabilities, promote inter-agency alignment, and equip actors with the tools to integrate JT principles into planning processes.

To address the shared need for foundational knowledge, tools, and coordination mechanisms across diverse stakeholder groups, cross-cutting capacity delivery recommendations were proposed. These recommendations aim to create a harmonized ecosystem through common curricula, toolkits, and collaborative platforms that facilitate peer learning, regulatory and fiscal coherence, and implementation support on the ground.

In the next phase, efforts should focus on institutionalizing capacity-building initiatives outlined in this assessment. This includes implementing cross-cutting recommendations through structured national curricula, targeted training programs, and technical assistance hubs at both national and state levels. Sustained collaboration among regulators, ministries, financial institutions, corporates, and state bodies will be crucial for building long-term capacity and accelerating a socially inclusive and financially robust energy transition.