The bygone year breached the 1.5°C global warming threshold, making it the warmest year on record. According to a report based on six datasets from the World Meteorological Organization (WMO), global temperatures remained more than 1.5°C above pre-industrial levels for over 90% of 2024. Adding to this alarming trend, global emissions continue to rise, further intensifying the climate crisis. Additionally, ocean heat content and sea levels have continued their upward trajectory, highlighting the ongoing and escalating impacts of climate change.

The COP29 highlighted that the challenge of energy transition is not macroeconomic in nature because, while global annual savings reached over USD 28 trillion in 2023, which is about 5–6 times higher than the funds required to fight climate change. However, most of these savings are concentrated in the Global North, whereas the need for climate finance is much greater in the Global South, which is poised for rapid growth. As a result, carbon emissions from these regions will rise significantly due to their increased energy consumption and industrial activity. Since climate change is a global problem, impacting everyone, it requires global cooperation for effective solutions.

Traditionally, climate finance has been perceived as a public sector endeavour on a  global scale. A diverse class of investors globally are eager to contribute towards the war against global warming, but they require credible local platforms to effectively channelize funds. India's ambitious plans, however, faced limitations due to the insufficient capacity of such institutions to match the agility, innovation, and profound understanding required. A significant void existed in sector understanding, hindering the flow of channelled capital into the sector.

Tata Capital's Role in Cleantech Finance Space

Tata Capital Limited (TCL), the flagship financial services company of the Tata Group, has been instrumental in this space. TCL's Cleantech Finance arm has established itself as an ideal intermediary to connect global climate funds with Indian climate projects and companies. Climate finance was traditionally seen as a public sector initiative. However, TCL has successfully made it more appealing for increased capital participation. Over the last six years, TCL's Cleantech Finance arm has consistently maintained a return on assets (RoA) of around 3%, attracting numerous lenders to join in the cleantech sector. The company's Cleantech Finance division has disbursed more than double of its total portfolio (disbursed over `350 billion and a portfolio of over `140 billion (as of 31 December 2024), setting a framework for other players to enter in the segment.

TCL has successfully steered climate financing through its Cleantech Financing arm by mainstreaming the cleantech sector through private capital by delivering tailored solutions during the early stages of development. As of December 2024, over 500 projects have been sanctioned in cleantech segment. TCL takes pride in its commitment to take calls to fund nascent technologies to mainstream them, which may not be appealing to traditional banks and financial institutions. It is working aggressively to develop markets for emerging sectors such as electric vehicles, solar rooftop, energy efficiency, waste to biogas, green hydrogen, green ammonia, biofuels and water treatment. In each of these sectors, Tata Capital has actively supported emerging climate startups that are debt-ready and have developed viable business models.

TCL has taken efforts to develop in-depth understanding of the rapidly evolving sectors encompassing technical, commercial, regulatory, contractual, and ESG aspects. A dedicated research vertical was established to enhance this understanding, coupled with the implementation of a robust risk diligence, and monitoring framework for complex transactions and efficient asset management. The company has integrated ESG assessment into every project appraisal process. TCL has progressively embraced cutting-edge technologies for making its business digital friendly and competitive. The company's recruitment strategy involved bringing in experts not only from financial services but also the renewable industry, forming a specialized research team with unparalleled segment expertise.

From the outset, the company embraced a collaborative strategy with investors, clients, and regulators. The company stands as the first private sector institution in India to secure a USD 100 million line of credit facility, from the Green Climate Fund (GCF), to finance rooftop solar projects in India. TCL, as a knowledge partner, has also become a part of marquee committees for promotion and support of climate finance. By adding honours and recognition to its coveted list, TCL has gained respect in the sector. TCL has received multiple esteemed accolades.

Climate Opportunity in India

India has already taken a leap in initiating green transition. The country has a huge untapped potential in cleantech sector with numerous emerging technologies gaining prominence. But it will have to attract climate investments of at least 10 times over the next seven years compared to the last seven to meet its targets. This vast fund requirement makes up 35–55% of the loan book of all commercial banks in India (as of March 2024). Given the magnitude, relying solely on the public sector is impractical, necessitating private sector investment.

While financing green transition is tricky, developing countries face two additional fundamental challenges compared to their developed counterparts. First, green technologies have higher capital requirements in contrast with the conventional technologies. Second, the cost of capital is higher in developing countries, making green investments more expensive. Even if developing countries can raise low-cost international capital, these savings are often offset by the high cost of hedging. Additionally, for tenures beyond the average maturity of over 10 years, the hedging market itself is limited, leaving projects exposed to currency risk in the medium to long term. A de-risking mechanism is crucial to finance energy transitions. 

India will also need to strengthen the domestic bond market to facilitate more green bond issuances, a product largely dependent on global pools of green capital as of now. In addition to domestic reforms, emerging economies like India will continue to depend on collaboration from all international climate investors given the scale of climate finance required. Effective channelization of diverse global capital is critical to create a meaningful impact, and this involves both public and private funds, as well as development finance institutions.

The Cleantech industry and financial markets have seen sustained reforms, from feed-in tariffs to auctions that scaled renewable energy. Public–private partnership (PPP) models have advanced transmission, water treatment, and electric mobility projects. Platforms like IDFs, AIFs, and InvITs are drawing domestic and international investments. But for substantial scaling up, strengthening of public institutions such as electricity distribution companies, municipalities, and urban local bodies is required. Weak financials and rising liabilities of these institutions create threat of non-payment. Cleantech projects have higher upfront costs and require longer contracts for viability. However, nature of technology is such that, future prices could be much more attractive than that of today. In the absence of contract enforcement framework, viability of cleantech projects could be jeopardized. Thus, strong project execution frameworks, robust payment security mechanisms, viable business models for emerging technologies, and harmonized taxonomies are critical pillars for achieving India's decarbonization goals.

Despite challenges, this scenario presents unprecedented opportunities in scale and longevity. TCL has played a pivotal role in mainstreaming the renewable energy sector and is working to make the emerging cleantech segments more attractive.  The company is focused on its chosen sectors and markets, working with partners to channelize necessary expertise, capital and realize India's climate goals.#