2023-07-04 17:30:26
#Environment
■ Financing the Green Transition- The National Bank for Financing Infrastructure and Development (NaBFID) lifts the heavy burden of implementing the National Monetisation Pipeline (NMP) and financing projects in the National Infrastructure Pipeline (NIP).
It has disbursed 60 percent of the total loan sanctioned to finance India’s infrastructure needs.
It also declared its intent to introduce takeout financing products, invest in Infrastructure Investment Trusts (InVITs) and refinance loans.
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NIP and Climate Change: Integration of climate risk in NIP is largely limited to building for acute physical risks, such as disasters and extreme events.
Building resilience against chronic physical risks like rising temperatures or accelerated loss of biodiversity finds comes under broad policy recommendations
Contrary to the global trend in the adoption of nature-based solutions and embracing green and blue infrastructure, NIP continues to focus on traditional grey infrastructure such as stormwater drainage infrastructure.
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G7 and Climate based Infrastructure: G7 has supported mandating disclosures, under the task force on climate-related financial disclosures, for banks and companies
But these largely remain voluntary, especially in India.
It has extended business responsibility and sustainability reporting (BRSR) to the top 1,000 listed companies
However,operationalising the concepts and mainstreaming their implementation is a time-consuming effort and the lack of expertise makes the task complicated.
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Financial risks due to climate change: There is a growing consensus that climate change poses financial risks.
Insurance companies exiting California due to wildfires are citing the risks faced by them in a world plagued by climate disasters.
Central banks have initiated stress testing measures to measure their portfolios performance in varying climate scenarios.
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India and Climate Based Infrastructure:
Indian regulators have announced a framework for green/blue bonds, and green deposits.
They also intend to propose guidelines for climate stress testing.
However,the financial institutions are struggling to accomplish the procedures.
Identifying relevant climate risks, correlating them to financial risks and quantifying them is a complex process.
One also needs to consider the credit risks
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PPPs and Climate Based Infrastructure: NaBFID is well-placed to consider recommendations on investing in pre-planning and site investigation, adopting a collaborative planning process with departments and downstream contractors involved to enable the success of PPPs.
Moreover, plans to proceed on the takeout financing route need an assessment of how broad-based growth and demand for credit would be.
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Way Forward: NaBFID needs to focus on structural measures that improve asset provisioning and quality as well as produce returns on investment to address climate-related financial and infrastructure challenges
NaBFID needs to take advantage of innovative financial products that have proliferated in a bid to mainstream climate adaptation and mitigation.
Green bonds, sustainability-linked bonds, and transition bonds all seek to divert global financial flows towards projects aimed at climate mitigation and resilience.
On the success of India’s sovereign green bond, issuances by NaBFID for private placements could increase green capital flows to infrastructure.
NaBFID can also consider the transition bonds (finance projects that are not entirely green but are attempting to reduce their emissions).
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Conclusion: Employing entity-level and project-level safeguards to direct funds to appropriate projects, through innovative financing structures, would attract a diverse investor base and enable scaling of finance.
Most transition bond frameworks, for instance, recommend an entity-level transition plan.
SOURCE - INDIAN EXPRESS
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