The corporate sector is making substantial efforts to improve its climate rankings. As per a recent report by ICRA ESG Ratings, India ranked sixth worldwide in terms of corporate climate action, with 127 companies committing to net-zero targets under the Science-Based Targets initiative (SBTi). Despite being responsible for
approximately 7 per cent of global emissions, Indian corporations are demonstrating increasing awareness and action toward sustainability.
Considering approximately 25 companies from the power, cement and mining sectors, the ICRA report observed that while coal-based generation remains prevalent, there is a marked shift towards renewable energy adoption in the power sector. This aligns with India’s broader commitment to integrating environmental, social and governance (ESG) principles into corporate operations and fostering a carbon-neutral strategy to meet global climate goals.
Current net zero status
Out of 127 companies with net-zero commitment from India, approximately 7 per cent belong to high-emission sectors such as construction materials and mining. The remaining are from sectors such as textiles, software and services, typically considered to have low-to-medium levels of carbon footprint.
SBTi is a voluntary target-setting initiative where companies can commit to setting science-based targets and have their objectives independently assessed and validated. Commitments and target setting are done through sector-specific guidelines by the SBTi.
As per the ICRA ESG Ratings report, high-emission sectors such as power, energy and cement—contributing 55 per cent to India’s overall greenhouse gas emissions—remain significantly behind in adopting net-zero strategies. Less than 10 per cent of companies from these industries have committed to net-zero goals, highlighting the need for greater engagement in sectors critical to reducing the country’s carbon footprint.
In the cement sector, high emissions due to clinker production are being mitigated through alternative fuels and carbon capture technologies. The metal and mining sector shows varied emission levels, with higher adoption of sustainable practices among companies with net- zero commitments. As per an analysis by ICRA on its sample set, it found that only a handful of corporates managed to reduce their absolute emissions (approximately 11 per cent decline) in the past six years; however, they have managed to stabilise or decline the emission intensities to a certain extent.
Financing requirements for net zero
Various estimates have been made about the total capital required for India’s decarbonisation journey. EY’s report titled “Energy transition: India’s journey to net zero” released in December 2024 estimates that approximately $150 billion-$200 billion is required annually to fund India’s decarbonisation journey. This represents approximately 4-6 per cent of of India’s GDP. The current level of investment accounts for only about 25 per cent of the total required to meet the country’s nationally determined contributions (NDCs).
Meanwhile, according to the Council on Energy, Environment and Water, India will need a cumulative investment of $10.1 trillion to significantly advance its climate transition efforts and achieve net-zero emissions by 2070. Conventional, more secure funding sources are expected to cover about $6.6 trillion, leaving a significant investment gap of $3.5 trillion. This substantial financial requirement highlights the pressing need for innovative and non-traditional financing mechanisms.
Despite significant challenges and substantial funding gaps, India’s track record in securing green finance has been commendable. Climate Policy Initiative estimates for fiscal year 2019-20 show that India raised $44 billion, with approximately 50 per cent coming from domestic private sources—a 150 per cent increase from that in 2017-18 fiscal year. While these achievements are notable, they still fall short of the necessary targets.
Renewable energy sourcing trends
As per the Climate Group’s latest RE100 Annual Disclosure Report, more than 180 major Indian and global businesses operating in India procured almost a quarter of their electricity needs from renewable energy in 2022 in the country.
Renewable electricity sourcing saw a 5 per cent jump to 23 per cent in 2022 from 2021, when companies sourced 18 per cent of their electricity needs from renewables. With an increasing share of RE100 companies operating in India, the report documents an increase in the total electricity demand of RE100 members in India from 12 TWh in 2021 to 17 TWh in 2022. Further, 48 per cent of renewable electricity purchased by Indian RE100 members was sourced from wind/solar projects, while 39 per cent came from hydropower.
Incentives and policy framework
Since the submission of its first NDCs at COP21 in Paris, India has consistently raised its ambition for the clean energy transition. In 2022, at COP26 in Glasgow, Prime Minister Narendra Modi announced India’s five-pronged goals on climate action, including the target to achieve net-zero emissions by 2070. India’s updated NDC ramped up targets on clean energy from 40 per cent to 50 per cent of the cumulative installed capacity from non-fossil fuel-based sources by 2030, and reduction of emission intensity of its economy from 33-35 per cent to 45 per cent by 2030 from
2005 levels.
Through supportive measures such as subsidies and favourable regulations, the government is enhancing the investment appeal of the renewable energy sector. In the green hydrogen market, strategic targets and export incentives indicate a promising market with high returns. The biofuel sector, supported by blending mandates and technological advancements, is opening new avenues for investment. Similarly, in the electric vehicle (EV) sector, subsidies and infrastructure initiatives are reducing barriers to entry, making investment in this growing industry increasingly attractive.
Additionally, the government’s recent introduction of a “Climate Finance Taxonomy” in the union budget is a significant step forward. This initiative is designed to attract capital toward climate-resilient infrastructure and practices in sectors such as shipping, aviation, iron and steel, and chemicals, ensuring that investments are efficiently directed to genuine green projects, thereby increasing the availability of capital for climate-related initiatives.
Another noteworthy achievement is the successful issuance of India’s sovereign green bond. The inaugural green bond issuance in 2023 raised Rs 160 billion across two tranches, with maturities of five and ten years, respectively. This effort effectively channelled substantial funding into the country’s green initiatives, supporting its commitment to sustainable development.
Further, initiatives such as the International Solar Alliance, the Coalition for Disaster Resilience Infrastructure, the Global Biofuel Alliance, the Leadership Group on Industry Transition and Resource Efficiency, and the Circular Economy Industry Coalition have been launched in pursuance of global climate actions.
Regulatory framework
According to the EY report, the Reserve Bank of India (RBI) is playing a crucial role in fostering a sustainable financial environment. Its membership in the Network for Greening the Financial System highlights a significant dedication to sustainable finance. In 2023, the RBI introduced green deposit guidelines to channel domestic investments into sustainable projects. Additionally, the RBI is working to establish a comprehensive disclosure framework for climate-related financial risks, aligned with the Task Force on Climate-related Financial Disclosures, applicable to specific categories of non-banking financial companies. This move is prompting financial institutions to reassess their sectoral exposures and reorient their portfolios towards greener projects
and sectors.
The Securities and Exchange Board of India (SEBI) is also enhancing ESG accountability by mandating business responsibility and sustainability reporting for the top listed companies. SEBI’s recent consultation paper on sustainable finance aims to expand the scope of India’s green investment landscape. This proposed framework includes a broader range of instruments such as social bonds, sustainability-linked securities and sustainable securitised debt, reflecting a comprehensive approach to sustainability.
Building the carbon credit market
The Carbon Credit Trading Scheme (CCTS), part of the Indian Carbon Market Framework, is expected to provide a market-driven incentive for emission reduction, offering a financial mechanism to reward low-carbon initiatives.
In July 2024, the Indian government adopted detailed regulations for the planned compliance carbon market under the CCTS. These new regulations outline the key design elements of the compliance mechanism under the CCTS, marking a significant advancement in India’s emerging carbon pricing framework.
The planned compliance mechanism under the CCTS will take the form of an intensity-based “baseline-and-credit” scheme, with mandatory greenhouse gas (GHG) emissions intensity targets (defined as tonnes of carbon dioxide (CO2) equivalent per unit of output) set for obligated entities in each year.
The new compliance mechanism will gradually integrate the sectors currently covered by the existing Perform, Achieve and Trade (PAT) scheme – a mandatory energy efficiency scheme covering more than 1,000 entities from 13 energy-intensive sectors.
Initially, the compliance mechanism will cover entities from nine industrial sectors already regulated under the PAT scheme – aluminium, chloralkali processes, cement, fertiliser, iron and steel, pulp and paper, petrochemicals, petroleum refining and textiles. The government plans to expand the scope at a later stage, notably to coal-fired power generation.
The CCTS will initially cover CO2 and perfluorocarbons, with provisions to expand to other GHGs in the future. The scheme will cover both direct (Scope 1) and indirect (Scope 2) emissions.
The Bureau of Energy Efficiency plans to develop a sectoral GHG emissions intensity trajectory for each covered sector up to 2030. This trajectory will be based on India’s NDC commitments, available technology and expected abatement costs in the respective sector.
The compliance mechanism will be complemented by a voluntary domestic offset mechanism that will allow non-obligated entities to register eligible projects for GHG emissions reduction, removal or avoidance against the baseline for the issuance of carbon credit certificates (CCCs). This component of the CCTS aims to incentivise emission reductions in sectors outside the compliance market and to increase market liquidity.
Recently in December 2024, the Central Electricity Regulatory Commission (CERC) published the draft Terms and Conditions for Purchase and Sale of Carbon Credit Certificates Regulations, 2024, to facilitate the trading of CCCs on power exchanges by obligated and non-obligated entities. The regulations will govern the trading of CCCs and contracts for CCCs on power exchanges approved by the CERC under the Power Market Regulations, 2020. The Grid Controller of India (GRID-India) will be the registry for the exchange of CCCs and will create an appropriate framework.
Challenges
A major bottleneck impeding private investment in India’s climate sector, especially beyond mainstream areas, is funding. Recent estimates suggest that India requires financing of approximately $2.5 trillion to meet its existing NDC targets till 2030, and nearly $673 billion in adaptation financing till 2030.
While the energy and transport sectors are already transitioning towards decarbonisation through electrification and clean energy initiatives, the industrial sector presents distinct challenges. Unlike other sectors, industrial emissions arise not just from energy consumption but also from the processes themselves, complicating efforts to reduce
carbon footprints.
To fully decarbonise India’s hard-to-abate sectors, a combination of electrification, clean hydrogen and advanced technologies such as carbon capture utilisation and storage (CCUS) will be essential. However, CCUS technologies are still in their infancy and not yet commercially viable, leading to increased costs. Additional challenges include high initial capital expenditure, technological uncertainty, inconsistent policy and regulatory signals, and massive socio-economic impacts given that the hard-to-abate sectors are often quite labour-intensive.
On the financial ecosystem side, measures such as financial incentives and mechanisms such as blended finance and patient capital are essential for supporting and mobilising private investment. Blended finance tools, such as concessional loans, guarantees, first-loss capital, subordinated debt, performance-based incentives, and advisory and technical assistance, offer strategic ways to commercialise and de-risk early-stage and non-traditional sectors, enabling their scalability. By bridging funding gaps in partnership with public, private, development finance institutions (DFIs), and philanthropic capital, blended finance is pivotal for ensuring that impactful innovations receive the necessary support, regardless of their development stage.
This approach is particularly critical for technologies with longer gestation periods, where traditional funding mechanisms may not suffice. The ability of blended finance to integrate grants, equity and debt creates a robust framework for sustaining climate projects throughout their lifecycle. DFIs play a crucial role in supporting riskier or unconventional sectors by offering grants and technical assistance from their global portfolios, thus aiding ongoing research and development and pilot projects, and enhancing the viability of these sectors.
Going forward, the importance of government policy in bridging the financing gap cannot be overstated. Clear, long-term policy signals and regulatory certainty can help mitigate the perceived risks of green investments, making the transition more affordable and appealing to investors. By creating a supportive environment through policies and incentives, India can attract both global and domestic capital to fund its ambitious green transition.
The government can further support this effort by facilitating public-private partnerships (PPPs), particularly in sectors and technologies where investors might be wary due to uncertainties and delayed returns. PPPs can provide private investors with the assurance they need, encouraging private capital to flow into underfunded sectors and creating mutually beneficial outcomes for all stakeholders.