by P. Gopalakrishnan, Managing Director, Southeast Asia and Middle East, GBCI
India’s financial landscape is undergoing a sustainability transformation. What was once a niche concern – Environmental, Social, and Governance (ESG) factors is now a mainstream investment priority. In fact, India has emerged as the fourth-largest emerging market for sustainable debt, with cumulative green and social bond issuance reaching USD 55.9 billion by the end of 2024 (a 186% jump from 2021). From stock exchanges to boardrooms, ESG considerations are gaining prominence, driven by a combination of regulatory pushes, investor demand, and innovative financing models that align capital with long-term sustainability goals.
Regulatory nudges that matter
India is rapidly embedding sustainability into corporate and financial frameworks. SEBI now mandates the top 1,000 listed companies file annual Business Responsibility and Sustainability Reports (BRSRs), aligning disclosures with global standards like GRI and TCFD. Moving from voluntary reporting to mandatory accountability, BRSRs emphasis quantitative metrics and comparability with international peers. Recent updates, including “BRSR Core” indicators, expanded coverage of value-chain partners, and phased third-party assessments are set to further strengthen credibility.
The financial sector is following suit. RBI’s Green Deposit Framework guides banks to channel funds into sustainable projects, while climate-related risk disclosures will become mandatory by 2027-28, supported by stress tests for extreme weather events. Additional measures, such as IFSC sustainable finance guidelines and a national green finance taxonomy, aim to clarify sustainability standards and prevent greenwashing (exaggerated or false sustainability claims).
According to the Climate Bonds Report, the government is also taking an active role, issuing sovereign green bonds worth ₹477 billion (~USD 5.7 billion) in 2023-24 to fund clean energy and infrastructure, while establishing a domestic benchmark for green financing. Together, these initiatives create a virtuous cycle: improved ESG disclosures attract investors and lower the cost of capital for sustainable projects, driving India’s transition toward a more sustainable economy.
ESG as a risk-mitigation and value tool
ESG’s rise goes beyond compliance or ethics. It’s increasingly about risk management. Investors see strong ESG performance as a marker of prudent, forward-looking management that can mitigate long-term risks. Companies with robust sustainability practices face lower operational risks, from environmental accidents to labour disputes, while neglecting ESG can lead to penalties, lawsuits, or reputational damage. Indian ESG indices have shown smaller drawdowns during downturns, reflecting the resilience of high-ESG firms. Strong environmental, social, and governance practices help companies navigate regulatory, operational, and reputational challenges, translating into more stable earnings. With climate change and the global green transition raising risks, ESG is now viewed as a form of insurance, protecting both financial and reputational capital while future-proofing portfolios.
Beyond green bonds
India’s sustainable finance market is rapidly diversifying beyond green bonds. While green bonds – debt raised for environmental projects – remain foundational, green loans and sustainability-linked loans (SLLs) are gaining momentum, allowing companies to borrow at favourable rates if they meet ESG targets. In 2024 alone, Indian corporates signed about USD 5.5 billion in green loan deals. Sustainability-linked bonds (SLBs), which impose higher interest if ESG targets are missed, are also attracting attention, including hybrid green-SLB structures to support energy transitions, such as repurposing coal plants into renewable facilities.
Transition finance is another emerging frontier, aimed at helping carbon-intensive sectors like steel and cement decarbonise, potentially requiring USD 650 billion in investment. Blended finance – layering public or concessional funds with private capital – reduces risk and lowers the overall cost of capital. These innovative instruments enable large-scale investment in sustainable projects, reward measurable ESG outcomes, and help mitigate greenwashing, moving India toward sector-wide decarbonization.
Aligning finance with India’s net-zero goals
India’s long-term climate commitment to achieve net-zero emissions by 2070 underpins its push for sustainable finance. Meeting this goal requires immediate investment, with the government estimating a climate finance need of USD 1.3 trillion by 2030, of which USD 756 billion is expected from private sources. Near-term targets, like cutting GDP emissions intensity by 45% from 2005 levels and installing 500 GW of non-fossil electricity capacity by 2030, demand capital for renewable energy, electric mobility, energy-efficient construction, and climate-resilient infrastructure.
ESG-oriented investing bridges policy and markets by directing funds toward projects aligned with these climate objectives, such as solar, wind, battery, and green hydrogen ventures. Policy measures – including sovereign green bonds, SEBI’s BRSR disclosure norms, RBI’s climate risk guidelines, and emerging taxonomies – standardize definitions, improve transparency, and reduce information gaps. Importantly, sustainable finance does not cut off legacy sectors overnight but incentivises transition plans, integrating climate risk into lending and investment decisions. By channelling capital toward cleaner alternatives, ESG-driven finance becomes a lever to accelerate India’s net-zero and sustainability ambitions.
Best practices
As sustainable finance grows, ensuring that commitments deliver real impact is critical. Greenwashing remains a concern, prompting India to adopt global best practices in measurement, reporting, and verification. Companies increasingly use frameworks like Task Force on Climate-related Financial Disclosures (TCFD) to disclose climate risks and seek third-party assurance, while rating agencies provide ESG scores tailored for Indian firms.
Industry-specific tools are reinforcing credibility. In real estate and infrastructure, LEED certifications signal energy efficiency, lower emissions, and responsible construction practices, making projects more attractive to ESG-conscious lenders, investors, and tenants. Portfolio-level programs such as USGBC’s PERFORM track sustainability across multiple assets.
Financial deals are increasingly tethered to verifiable ESG metrics: green loans may require certification, and funds may screen companies using BRSR disclosures or ESG ratings. By linking financial terms to measurable sustainability outcomes, India’s markets are enhancing transparency, accountability, and investor confidence, ensuring that ESG finance drives tangible environmental and social impact rather than just rhetoric.
The road ahead
India’s experience shows that finance can be a powerful catalyst for sustainability – and vice versa. ESG is no longer peripheral; it is increasingly embedded in core financial decision-making, influencing how companies raise capital, how banks lend, and which stocks investors favour. Sustainable practices are rewarded with better access to capital, while that capital drives tangible environmental and social outcomes.
Momentum is evident in the growing number of green bonds, sustainability-linked loans, and ESG disclosures, but scaling up remains a key challenge. Mobilising trillions of rupees for clean energy, green infrastructure, and social development will require continued innovation, robust policy support, and a collective shift in viewing sustainability as an investment rather than a cost.
As ESG frameworks, climate finance taxonomies, and new instruments evolve, India has the potential to show how a large emerging economy can align growth with responsibility. Done right, ESG-driven finance can manage risk, generate returns, and deliver measurable impact – making finance truly work for sustainability.
