Going green" is no longer jargon but an imperative of the times we live in. All stakeholders—the government, companies/ banks, individuals—must collectively own the responsibility to conserve the environment for our future generations.

According to the World Bank, 70% of the global greenhouse gas emissions comes from infrastructure development, construction, power plants and transport system operations. The World Health Organization projects that the number of deaths attributable to the harmful effects of emissions from key infrastructure industries will rise from the current 150,000 per year to 250,000 by 2030. Therefore, the challenge before developing economies is: how to modernize societies, build quality infrastructure and provide efficient transportation services while minimizing the damage to the environment.

India is no exception. The Narendra Modi government has rightfully put infrastructure development on mission mode, in the firm belief that good infrastructure will be a force multiplier for job creation and higher economic activity. The country needs about $4.5 trillion in infrastructure funding by 2040. Of this, nearly $200 billion will be required to generate 175GW renewable energy by 2022; $7.7 billion for intra-city metro rail networks; $667 billion for electric vehicles programme; and affordable green housing will need about $1 trillion.

While these numbers are daunting, they appear minuscule in the global context. A study by the Global Commission on the Economy and Climate has projected global infrastructure investments worth $90 trillion over the next 15 years to mitigate climate change risks.

Investments required to achieve these ambitious targets cannot be met by traditional sources of financing. India’s annual budgetary allocation towards renewable energy has been largely insufficient. Banks and other traditional lenders primarily focus on fossil fuel-based energy projects.

In such a scenario, providing innovative thinking in climate finance is key to successful execution of big-ticket projects in India. Green financing strategies such as green bonds, catalytic and transformational financing, and impact investing can provide the much-needed panacea for an infrastructure-hungry country like ours.

Let’s not confine the “green projects" status only to solar or wind energy. Sustainable land use, water and urban waste management, green buildings, clean transportation, pollution prevention and control systems, and energy efficiency projects are some of the areas that are globally eligible to receive green financing.

Today, green bonds help companies tap money from specialized funds focused on climate change. As of now, 120 institutional investors from nine countries have joined the Institutional Investors’ Group on Climate Change. Also, over 1,500 institutions are signatories to the United Nations’ Principles for Responsible Investments. Sovereign funds like GIC, Abu Dhabi Investment Authority, and multilateral agencies such as International Monetary Fund, International Finance Corp. and Asian Development Bank, among others, are proactively channelling funds to invest in green sustainable projects.

These global institutions believe in growing responsibly and, hence, are committing funds to mitigate the impact of climate change and avail business opportunities associated with the transition to a lower-carbon society and economy. According to the International Energy Association, to limit climate change to 2 degrees, CO2 emissions must fall by 70% in aggregate by 2050 in Asia. For this to fructify, emissions from the power industry, for example, should reduce by 85%.

In India, banks and non-banking financial companies have traditionally been the primary sources of green infrastructure funding. But they have a limited appetite for long-term debt due to asset-liability mismatch. Also, the current regulatory restrictions allow insurance companies and pension funds to invest only in AAA-rated bonds. This regulatory framework should change in order to provide a fillip for green bond issuances. To deepen the green bonds markets in India, the government should actively consider making them tax-free. Tapped astutely, the Smart Cities project can attract huge capital from these bonds.

India’s green bonds market is still nascent. The country’s first green bonds were issued as recently as 2015. Cumulatively, India has raised over $6 billion via green bonds, of which one third were issued in 2017. China was the top green bonds issuer in 2017 with a 22% share, followed by the US (13%) in the $120 billion global market. Our internal research is bullish on green bonds. We believe that green bond issuances in Asia will cross $600 billion over the next five years. Demand for green financing continues to be high from international investors and it is in India’s interest to develop a strong green financing ecosystem.

The millennial investors’ cohort will, over the years, become a critical influencer for mutual funds, pension funds, banks and corporates, demanding higher governance standards from an environmental viewpoint and pressuring companies to follow better environment, social and governance standards. A conducive and transparent regulatory environment can unlock the full potential of green financial strategies in India, helping the country achieve its Paris Climate Accord targets.

Kaku Nakhate is president and India country head, Bank of America.

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