2030 Finance | December 2, 2019

Catalyzing finance for climate action in India: A Q&A with Tata Trusts’ Shloka Nath

Tanaya Jagtiani and Devanshi Vaid
Guest Author

Tanaya Jagtiani

Guest Author

Devanshi Vaid

Mumbai, Dec. 2 – Shloka Nath of Tata Trusts, one of India’s oldest philanthropies, is trying to reframe the climate challenge.

“Climate change is not necessarily a doom-and-gloom story,” Nath said last week on the sidelines of the Sankalp Global Summit in Mumbai, where she spoke with India Development Review.

Nath heads the India Climate Collaborative, a group of Indian philanthropies helping India meet its climate goals. “There is an opportunity for financial systems to do what they do best, and that is figuring out how we can become a centre for the greatest risk management system the planet has ever known,” she says.

Among her prescriptions for philanthropic investors: Add a climate lens to agriculture, livelihood and migration programs; collaborate at scale to capture attention; simplify messaging points to establish a baseline consensus; and use data to make the climate case to investors.

India Development Review: To start with, what is climate finance, and what does the climate finance landscape look like in India?

Shloka Nath: Climate finance refers to the amount of funding that is required to make sure that when you are growing the economy, you’re doing so in a way that is emitting less carbon. 

So, when we talk about urbanisation, we’re talking about building green buildings. When we talk about energy efficiency, we’re talking about finding ways for people to access energy that don’t result in more carbon being emitted. One fascinating point on that – which is a slight diversion – is that energy poverty in India is far more pervasive than income poverty. More than half of the population in this country does not have access to clean cooking fuel.

Coming back, there are two primary gaps with climate financing in India. 

The first is that the amount of funding committed is inadequate. While India receives more money from dedicated climate funds than any developing country, the funds are drastically below meeting our mitigation needs. For example, the preliminary estimates for meeting India’s climate change actions between 2015 and 2030 is approximately USD 2.5 trillion.

In addition to this first problem of insufficient funding, is the assumption we made about money received from dedicated climate funds – we thought that it would act as a seed fund and bring in more money, which has not yet happened.

When it comes to domestic funding, public finance is currently the primary source of climate smart financing in India. Less than two percent of philanthropic capital is directed towards climate change, and this needs to be increased.

The second big gap is that we have not mapped out the climate risk on the Indian economy. This is because in India right now, the Central Bank doesn’t have a research department, and is more focused on short-term market stability; rather than long-term climate risk. 

Why should financial systems care about climate?

It’s like James Gorman said, “If we don’t have a planet, we’re not going to have a very good financial system.” So to start with, the survival of financial systems is dependent on figuring out sustainable pathways for the future. And this can be done by securing the investment architecture.

Secondly, climate change is not necessarily a doom-and-gloom story. Actually for India, and for the developing world, this is where all the solutions are going to come from, because all the people are here. Which means that for a financial institution, or an investor in this space, there is tremendous opportunity for innovation and growth. There is an opportunity for financial systems to do what they do best, and that is figuring out how we can become a centre for the greatest risk management system the planet has ever known.

Climate change is nothing more than economic transition. There is no pathway to sustainable development that is innocent of climate. So when investors and funders talk about development in India, they should also be talking about climate change, because it’s the same thing.

What can impact investing do for delivering climate finance at scale?

The goal of impact investment is not to match the scale of public funding – that’s simply not possible. However, what it can do is trigger private sector investment in the economy around climate change. 

Secondly, impact investing can contribute to building the infrastructure around climate finance that doesn’t exist right now. This ties back into what I said earlier about the need for more research around climate risk to figure out where the problems lie, and where the money needs to go.

And lastly, impact investing can help de-risk the sector, by bringing the real or perceived risks down for investors. For example, in India the cost of energy-efficient technology has come down, but the cost of financing this green technology has not. So, if you are a small or medium enterprise and want to be more energy-efficient, not because you care about climate change, but just because it makes more business sense for you, the rate at which you’re getting a loan is still too high. 

When it comes to climate financing, what are some steps that could help funders and investors start moving?

At the India Climate Collaborative, we are trying to raise the quantum of funding around climate change. To do that, here are some of the things we think are important:

a) Add a climate lens: We are not asking everyone to become a climate change funder. Instead, we are saying, continue to fund the sectors you are funding, but use a climate lens so that you can ensure sustainability. Start thinking about your programmes and projects in terms of how you can risk-proof them from climate change. For example, if you are funding agriculture or livelihood and migration, those assets are going to be hit by extreme weather changes, and that’s something you should be designing for.

b) Collaborate at scale. When funders come together not only does it de-risk the philanthropic (or other) investment, but it also makes a larger quantum of funds available to the sector. There is also a chance that large-scale collaboration will catch public and government attention, which could potentially influence policy change at a state and national level.

c) Simplify climate communications. There are funders and investors in India who are climate-curious – they are interested in climate but they aren’t sure what it is or how it applies to them. We need to therefore, work on the communication problem that climate change faces, and make sure that when it comes to climate, there is a common baseline of understanding amongst funders, policy makers, and the people implementing change.

d) Make the climate case with data: We need to explain to investors that climate change is not only bad for the environment, it’s also really bad for business. If you are still underwriting sunset industries, you are on your way out in terms of what your future market sustainability is. Currently, we aren’t using data to inform investors what companies are under risk based on what their assets are being exposed to. If we want to make sure that it is a fair market for investors, we need to start publishing this data and make sure that people have access to it.

Tanaya Jagtiani is an editorial analyst at India Development Review. Devanshi Vaid is IDR’s co-founder.