green bonds – Just Transition Initiative

Summary

This report, a product of the India Just Transition Finance Roadmap (JTFR) project, identifies some priority actions that financial institutions can take to support climate action that also delivers positive results in terms of livelihoods and sustainable development. It involves a review of existing practices, an assessment of exposure by sector and region, and the identification of some priority actions for the finance sector. The authors describe the just transition agenda as the “connective tissue” that binds climate goals with social outcomes.

The authors highlight how India simultaneously confronts the challenges of multiple economic transitions—urbanization, digitalization, and the shift to zero carbon. They identify the distributional impacts on Indian states in sectors that are expected to be the most impacted, including: coal mining, electricity generation, agriculture, manufacturing and industry, along with transportation. Using the four dimensions of social risk arising from the net zero transition—namely livelihoods, energy access, public finance, and human development, they find that Madhya Pradesh, Jharkhand, Chattisgarh, Uttar Pradesh, Bihar, Odisha, Telangana, and Rajasthan will be the most affected by the zero-carbon transition.

The authors suggest that the framework shows a possible mapping of risks to investments, highlighting the role that financial sector players, regulators, and policymakers need to play in ensuring that a just transition is achieved. Furthermore, they highlight how the framework can be used to provide guidance for investors to understand company operations in vulnerable regions, and whether there are any investment strategies capable of mitigating the risks in these regions. It can also provide guidance for investors seeking to align capital allocations with the just transition framework. From their conversations with investors, the authors identify how the just transition is still at an early stage of development in India and needs definition and how it needs to be placed in a core sustainable developmental context. Furthermore, the conversations also reveal that policy action is a crucial catalyst for a just transition and that shareholder engagement on just transitions is increasing.

Summary

“This short paper outlines why the financial system has been unresponsive to climate and sustainable development imperatives. The author suggests that climate change is the ultimate market failure and outlines the toll in terms of climate-related displacement and migration, the cost of climate catastrophes, and the cost of adaptations. The author also points out the small amount of funding already committed to climate mitigation relative to the scale of this challenge, suggesting that finance needs a new “purpose” before it can align with climate finance needs.

Some positive steps have included the issuance of carbon-linked bonds, green bonds, and sustainable bonds, but the author argues that direct intervention in finance is required in order to account for negative externalities, encourage innovation, account for systemic risks, and ensure policy coherence.

Private sector-led interventions include the Task Force on Climate-Related Financial Disclosures (TFCD). But public, non-market interventions should include financial regulations, including requiring greater disclosure; judicial interventions, including shifts in fiduciary responsibility; direct financing for joint ventures and subsidies; and stronger public procurement rules that would account for climate risks and liabilities. The author argues these more forceful interventions are required in order to incentivize the finance system to fund sustainable development.”