India’s banks and investment funds will have to do “a lot more” in supporting small and medium industries to decarbonise—without which the country’s net zero ambitions could fall apart, according to Vivek Pathak of the International Finance Corporation.
“If we are to work with and decarbonise SMEs, the large global funds won’t do it,” said Pathak, the director and global head-climate business at the World Bank’s International Finance Corporation. He was speaking at the launch of a report in New Delhi highlighting India’s net zero opportunities.
“That will have to be done at the domestic level. And SMEs don’t have either the capital or the technology to do it. How do we get our local pension funds and local banks to do a lot more on climate?”
Pathak explained that SMEs will find it hard to access funds from international sources like private companies, sovereign funds and multilateral institutions. “Global players like large-ticket items. You talk with them about a $10-20 million project, they will not talk to us again.”
As India has demonstrated that it can offer large-scale projects—like it did in adding solar capacity—it is likely to be the place where global capital will continue to be channeled, he said.
The other concern with global capital is that it comes with currency risks, he said. “So, either we find a way to de-risk it, or otherwise our friends in the Reserve Bank won’t be very happy if India were to borrow trillions of dollars.”
Further, India will need a pool of capital of blended finance—either grant money, or funds for sustainable development in developing countries offered at cheap rates—that help bring costs down, he said.
That finance can be used to fund newer, unproven and costly technologies used to mitigate emissions from hard-to-abate sectors like steel and cement. “That (blended finance) can be used for initial years, and as these technologies start getting used more over time, you will see the cost curve coming down.”
Pathak highlighted an urgent need for India to address its requirement of funds for adaptation, which are measures to adapt to a world with increasing climate and physical risks.
“Climate risk is a reality. In India, we’ve had droughts on the one hand and floods on the other. Sea levels keep rising,” he said. There is a need to “get capital to mitigate some of these risks and make our infrastructure resilient”.
According to him, India should build its future infrastructure assets in a manner where it can withstand some of the risks like extreme weather that come with climate change.
“The financial sector needs to start factoring in these risks when they do their credit analysis,” he said. “That’s not being done in a systemic manner right now. If that happens, a lot of these assets will be forced to become resilient.”