Sustainable finance holds the key to a better future

 Sustainable finance holds the key to a better future

Ram is a real-estate developer. He approaches a bank for funding a green housing project wherein they build 50 green and eco-friendly homes, saves electricity and water costs as well as cause less damage to the environment. The bank grants him a loan under sustainable finance. The houses are sold quickly. The owners of houses are happy because electricity and water costs are reduced, the real-estate developer is happy about the high demand and profit on houses and the bank is happy as the borrower's project is eco-friendly and prompt repayments are coming in. This is an example of sustainable finance.

Sustainable finance is defined as investment decisions that fund environmental, social, governance, or economic-related projects. Sustainable finance includes funding projects related to renewable energy, green cars, green home loans, and green bonds to name a few. This is called providing green credit. Recently, the demand and profits for green projects increased tremendously. Hence, investors now need not compromise on the returns while investing in sustainable finance. For India with an ambitious goal of becoming a net zero emitter of carbon by 2070, the concept of sustainable finance becomes even more important. The government and other regulatory bodies have taken various steps for the promotion of sustainable finance in India.

But let us understand the need for sustainable finance before diving into the steps taken by the government. Recently, the world is experiencing significant impacts of climate change which are to be addressed for a sustainable future. Sustainability is the ability to exist and develop without depleting natural resources for the future. Creating a sustainable future requires an all-hands-on-deck approach from most industries and finance is chief amongst them. It holds enormous power in funding and bringing awareness to issues of sustainability.

As a consequence, the government has taken various steps in promoting sustainable finance. The launch of Rs 16,000cr worth of sovereign green bonds by the Reserve Bank of India is an important step in this regard. Also, the budget 2023-24 includes GREEN GROWTH in its Saptarishi. Moreover, SIDBI has launched Green Finance Scheme for MSMEs that execute projects or provide services related to the green value chain. SEBI has made the filing of the Business Responsibility and Sustainability Report mandatory for the top 1000 companies which provides an opportunity for entities to embed sustainability in the core strategy. Through these initiatives, the government and various regulators aim to cultivate environmentally friendly technologies alongside the mitigation of climate change.

On the flip side, the major challenge of green finance is high borrowing costs, false claims of environmental compliance, and maturity mismatches between long-term green investments and the relatively short-term interests of investors. Perhaps being the most populous country, India faces a bigger challenge in coping with the consequences of climate change than most other nations. Thus, by meticulously overcoming these challenges, sustainable finance will prove to be a key enabler in the world's aim to achieve sustainable development goals by 2030.

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