Dr Srivalli Krishnan

Abstract

Joint Initiative for a Transformative Climate Finance Mechanism

Joint Initiative for a Transformative Climate Finance Mechanism

Climate change poses an unprecedented challenge to our economic, environmental, and social well-being. India, being one of the most climate-vulnerable nations, requires coordinated financial interventions to drive mitigation and adaptation efforts across sectors. Thus, BMGF proposes to create a Climate Finance Pool, a collaborative platform that brings together leading financial institutions, philanthropic organizations, and multilateral/bilateral funding organizations to drive impactful climate action through structured financing.
 

The Need for a Climate Finance Pool

India’s commitment to achieving net-zero emissions by 2070 and its Nationally Determined Contributions (NDCs) under the Paris Agreement necessitate an infusion of significant financial resources. The existing financial landscape, however, faces several critical gaps:

• SAPCC gap financing: State Action Plans on Climate Change (SAPCCs) require additional funding beyond government allocations to effectively implement adaptation and mitigation projects.
• Limited private sector participation: Increased need for structured climate finance mechanisms that can de-risk and mobilize private capital for green projects.
• Fragmented funding: Current climate financing efforts are scattered across multiple institutions, resulting in inefficiencies and missed synergies.
• Sectoral limitations: Public sector lending alone cannot meet the scale of investment required; the private sector need to play a proactive role in financing climate-friendly enterprises and initiatives.

To address these gaps, a consolidated Mega Pool of Climate Finance will provide structured capital to both the public sector (SAPCC financing) and private sector (green finance initiatives), fostering a transformative shift toward a sustainable and resilient economy.

Vision for a Climate Finance Pool

This financing platform aims to:

• Aggregate climate capital: Bring together domestic financial institutions, foundations, and multilateral/bilateral funding organizations to create a large, flexible pool of funding for climate-related initiatives.
• Dual-sector lending approach: Provide financing to both public sector projects (SAPCC gap financing) and private sector enterprises focused on green initiatives.
• Risk mitigation and de-risking mechanisms: Develop risk-sharing models to attract commercial capital and philanthropic funding for innovative climate solutions.
• Blended finance models: Combine concessional and commercial finance to drive investments in clean energy, climate-smart agriculture, water conservation, sustainable infrastructure, and other critical sectors.
• Support scalable and replicable models: Enable state governments, enterprises, and financial institutions to replicate successful financing structures across regions and sectors.

Proposed Interventions from a Climate Finance Pool

Public Sector Lending: SAPCC Gap Financing: SAPCCs outline critical adaptation and mitigation measures but often lack the necessary financial support for full-scale implementation. Through this Climate Pool, we can target the following:

• Provide low-cost, long-term financing to state governments for executing SAPCC projects.
• Support states in co-financing climate resilience initiatives in agriculture, water security, disaster risk reduction, etc.
• Facilitate partnerships with multilateral climate funds (e.g., GCF, Adaptation Fund) to leverage additional resources.
• Establish a Climate Resilience focus within the capital pool to accelerate investment in nature-based solutions and climate adaptation.

Private sector lending: While public sector investments focus on the foundation for climate resilience, private sector engagement is essential for scaling up green innovations. To foster private sector participation, this capital pool can target the following:

• Establish a dedicated Green Finance arm that extends financing to businesses aligning with national climate goals.
• Finance innovations across renewable energy projects, sustainable agriculture ventures, green manufacturing initiatives, etc.
• Offer concessional credit lines and guarantee-backed lending mechanisms to attract private investment.
• Develop innovative financial products such as sustainability-linked loans, green bonds, and carbon financing instruments.
• Align with global ESG frameworks to ensure investments drive tangible climate and social impact.

Relevance of the initiative for different stakeholders

This initiative provides a collaborative platform to maximize climate finance impact while addressing critical gaps in risk mitigation, financial accessibility, and investment scalability. By pooling resources, it enables private banks, philanthropic foundations, and multilateral banks to achieve their climate finance objectives more effectively:

Private Banks

• De-risk climate investments: Access to risk-sharing mechanisms such as blended finance models, partial credit guarantees, and first-loss capital, reducing exposure and enhancing investment viability.
• Leverage concessional finance: Participation in the pooled fund allows banks to blend concessional and commercial capital, making climate lending more financially sustainable.
• Regulatory alignment & ESG compliance: Strengthens banks’ ability to meet RBI and SEBI’s evolving sustainable finance guidelines.
• Expand climate finance outreach: By co-financing SAPCC projects and leveraging philanthropic capital, banks can strengthen public-private partnerships, and scale green finance to underserved sectors.

Philanthropic Foundations

• Catalyse large-scale climate action: Blending philanthropic contributions with commercial capital helps scale climate interventions beyond traditional grant-based models.
• Support early-stage innovation: Channelize patient capital to emerging climate technologies and business models, bridging the gap to commercial viability.
• Strengthen climate resilience: Funds adaptation and resilience initiatives in agriculture, water security, disaster mitigation, etc. to directly advancing India’s NDCs and global climate commitments.

Multilateral Banks

• Ensure last-mile impact: Participate in a structured financing mechanism which ensures climate funds reach farmers, MSMEs, and FPOs efficiently, addressing systemic financing gaps.
• Align with climate priorities: Collaboration with national financial institutions, private banks, and state governments ensures financing aligns with global as well as India’s climate change objectives.
• Scale innovative finance models: Provide capital to local players for green credit guarantee funds, results-based financing, blended finance mechanisms, etc. driving implementation of innovative climate investment approaches.
• Amplify investment impact: Co-invest in blended finance structures that strategically leverage public and private capital, unlock larger funding pools and significantly scale climate action.

Call to Action: Join a pool of Climate Finance

The Gates Foundation invites key stakeholders in the climate finance sector to join this transformative initiative and play a pivotal role in shaping the future of climate finance in India. Together, we can:

• Define a governance structure to oversee the pool’s operations.
• Identify priority sectors and projects for initial financing.
• Mobilize additional funding from global climate finance entities.
• Develop standardized investment criteria to ensure alignment with climate goals.
• Host a launch summit to bring together government agencies, private players, and financial institutions to formalize the initiative.

We aim to create a financing ecosystem that accelerates India’s transition to a low-carbon, climate-resilient future.

Gates Foundation has already established a Technical Assistance Unit (TSU) at National Bank for Agriculture and Rural Development (NABARD), to facilitate climate action in India’s agriculture, natural resources, and rural development (ANR) sector. As part of the engagement, TSU is supporting NABARD to raise climate finance (from public and private stakeholders), deploy climate finance (designing new products and channelling capital for climate resilience), and manage climate finance (internal capacity building of regional offices, own net-zero targets, etc.). We are also supporting the subsidiaries of NABARD for financing climate resilience projects across India.