India is at a turning point in its history, with a bold goal of moving to a low-carbon, sustainable energy future. The country’s population is expected to increase by a quarter of a billion people by 2070 arises the importance of combatting climate change. India’s proposed massive energy switch will come at a high cost. It will entail expanding the use of renewable energy sources, updating infrastructure, and enhancing sector-wide energy efficiency. The promotion of blending finance for climate change is considered to be a strong opportunity on one side while being a challenge on the other. It assures that developing countries are in a position to pursue low-emission climate-resilient development that is vital as they experience most of the impacts of climate change.
One of the sustainable financing opportunities that have been hailed as feasible for such financing deficits is blending which entails the use of both public and private capital. The blended finance structures combine such cheap capital from either the public or philanthropic organisations with the commercial finance to avoid risks and attract more funds. It can boost the possible returns of climate projects that the private investors can consider as being unprofitable or too risky to fund. However, there is a set of several attached obstacles that have to be addressed to make effective use of blended finance: On the execution level, it refers to the challenge of deal structuring, to raising the issue of quality, and to the objectives of how to ensure that more than business-as-usual is delivered by a blended finance approach. Perhaps much has been penned on how blended finance has provided capital for decarbonisation as well as adaptation.
A survey was conducted with a sample comprised 560 respondents that were purposively selected to evaluate the extent of the implementation of blended finance in climate action in India concerning the effectiveness of the tools, the institutions, and when applying public-private partnerships. The data on the types of financial instruments used in blended finance projects highlights the preferences and trends within the sector. Green bonds, the most frequently used instrument (50%), reflect their popularity due to their ability to attract private investment while offering transparency and accountability. This preference indicates that green bonds are perceived as effective tools for mobilizing large-scale finance and engaging institutional investors. These can be attractive to private investors looking for stable returns. The lower percentage of loans compared to green bonds and grants might indicate a cautious approach towards debt financing in high-risk climate projects, where returns can be uncertain.
The most significant challenge identified is institutional capacity (40%). Suggesting that many organizations, particularly at the local level, lack the necessary skills, resources, and structures to manage and deploy blended finance effectively. Enhancing institutional capacity through training, technical assistance, and organizational development is essential. 30% of respondents, highlight the need for clearer, more supportive policies and regulations that facilitate blended finance. Inconsistent or inadequate regulatory environments can create uncertainties and hinder the flow of finance. Strengthening policies to provide a stable and predictable framework for investment is crucial. 20% of respondents, indicates that perceived risks associated with climate projects, such as financial, technical, and political risks, deter private investment. Developing risk mitigation strategies, such as insurance products, guarantees, and blended finance structures that share risk between public and private sectors, is necessary to attract investment. Access to financial instruments, mentioned by 10% of respondents, shows that there are still barriers to accessing suitable financial products and services. This could include a lack of available products that meet the specific needs of climate projects or difficulties in navigating financial systems. Improving access to diverse financial instruments can help overcome this challenge.
According to the overall findings, it was indicated that out of the total respondents, 65 percent observed either positive or greatly positive impacts that were funded for the projects. This means that the majority of projects are bound to bring positive impacts hence proving the efficacy of blended finance techniques. Hence, while 25 percent of the respondents claimed that the competition had only a minimal effect, 10 percent claimed that it had no effect at all. These results indicate that although most ventures are effective, there are cases in which the intended goals are not attained completely.
Finally, Interpreting the implications of the survey, green bonds are identified as the leading financial instrument, which indicates areas of institutional capacity and policy setting. Other factors that emerged as barriers are; Risk perception/Understanding and Policies and strategies of similar areas and Integrated policies and strategies were also discovered as very essential barriers. Hence there is a need for the enhancement of the local institutional setting, raising the level of regulations, and introducing new ways of dealing with the risks. In addition to this there’s a plea for a systematic monitoring and reporting of blended finance instruments in a way that depict the highest possible effectiveness. Also it is suggested to the policy maker as well as the other stakeholders to increase the chances of the utilization of the blended finance for Sustainable Development in India.
Dr S Durga, Faculty , Department of Management Studies, Vignan Foundation for Science, Technology and Research, Guntur.