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Forbes
26-06-2025
- Business
- Forbes
How Global Finance Undermines Climate Adaptation And Resilience
Stone pillars in the surge tank area of the Metropolitan Area Outer Underground Discharge Channel in ... More Kasukabe, Saitama Prefecture, Japan, on Friday, Sept. 22, 2023. Japan has financed enormously expensive infrastructure projects to protect cities from catastrophe, but old adaptation plans may not be enough against increasingly heavy rains. Photographer: Akio Kon/Bloomberg Despite years of global pledges and financial innovation, climate finance is not reaching where it is needed most. The countries most exposed to these growing threats often remain the least equipped to finance effective adaptation and resilience. Adaptation, the work of building resilience to a changing climate, remains the orphan of climate investment. A Climate Finance System Built To Fail The Most Vulnerable According to the Climate Policy Initiative's latest analysis, the Global Landscape of Climate Finance 2025, annual global climate finance reached a record-breaking $1.9 trillion in 2023, more than tripling over six years. Between 2021 and 2023, climate finance grew by an average of 26% per year, significantly faster than the 8% annual growth seen from 2018 to 2020. If this pace continues, the world could meet $6 trillion in annual climate investment by 2028. Yet even this rapid growth leaves a significant gap between investment and needs. Some studies estimate that energy needs alone could require up to $2.4 trillion annually, while BloombergNEF and UN analyses project that aligning with the Paris Agreement will demand around $5.6 trillion per year from 2025 to 2030. When the scope expands to include sectors such as industry, buildings, transport, and especially adaptation and resilience, total investment requirements rise sharply. CPI estimates that $8.6 trillion per year is needed by 2030 to stay on track for a 1.5°C pathway. For many emerging markets, the logic of global finance is cruelly circular. Climate risk increases sovereign risk, which raises borrowing costs, reducing governments' fiscal space to invest in adaptation. Thus their vulnerability increases. 'This holds back development and prevents the very investments needed to reduce their vulnerability,' said Professor Ulrich Volz, Director of the Centre for Sustainable Finance at SOAS, speaking at a recent panel co-hosted by SOAS and the Anthropocene Fixed Income Institute. The discussion laid bare a system that is structurally failing the Global South and explored how it might be rebuilt. CPI data reveals that only about 10% of total climate finance currently goes toward adaptation, with little evidence of a significant upward trend. Mitigation, the reduction of emissions through investment in clean energy transport and industrial efficiency, continues to attract the lion's share of climate finance, driven in part by a record-breaking rise in private capital. For the first time in 2023, private climate finance exceeded $1 trillion, thanks to household spending on EVs, rooftop solar, and energy-efficient homes. In contrast, the process of adjusting to the physical impacts of climate change, adaptation, remains drastically underfunded. The disparity is not just about money but about measurability. Mitigation benefits are easier to quantify: emissions reduced can be tracked in metric tons of CO₂, and financial returns can be modeled through carbon markets or energy savings. Adaptation, however, often delivers diffuse or delayed benefits: stronger infrastructure, early warning systems, or climate-resilient agriculture do not generate immediate profits, but they prevent future losses. This measurability gap has led to a system that favors what can be easily counted over what is urgently needed. Adaptation is not optional, it is necessary to manage the impact of climate shocks. Yet until it is valued appropriately in financial systems, it will remain sidelined. Climate finance remains dominated by debt instruments. Grants account for just 6% of flows, despite their critical role in funding adaptation and public goods. CPI also highlights that concessional flows have not scaled significantly. While investment in clean energy and mitigation technologies has surged, adaptation finance remains chronically underfunded. Some argue this is due to its complexity and context-specific nature, which often lacks a clear commercial return. 'There is a business case for adaptation, and we can demonstrate that through better data and performance-based approaches that start to drive down the perception of risk,' said Amal-Lee Amin, Managing Director at British International Investment (BII). BII is working across Africa and Asia to mainstream physical climate risk into private investment decisions, and is part of a growing movement to quantify resilience as a financial benefit. 'If we are more consistent in demonstrating where risk is being managed, we should be reducing the cost of capital,' she said. This is critical to breaking the cycle of underinvestment. Despite a growing array of tools such as green bonds, blended finance, and SDG-linked debt, access to capital remains out of reach for most. Pablo Perez, Sustainable Capital Markets Structurer at BNP Paribas, noted that even mitigation finance tools like green bonds are often inaccessible to emerging economies due to technical complexity. He warns that the complexity and time to prepare documentation locks out most potential issuers, especially those without a dedicated debt management team. And while development banks have tried to fill the gap, they often come with their own challenges. 'There's a critique that DFIs crowd out risk capital,' said Ulf Erlandsson, CEO of the Anthropocene Fixed Income Institute. 'They pick the high-grade assets, whereas the higher-risk assets are left alone.' From Risk Transfer to Risk Sharing One of the more provocative ideas came from Simon Zadek, founding partner of Morphosis, who challenged the entire premise of de-risking, a common practice where public institutions take the first loss to make projects palatable for private investors. 'This isn't de-risking,' Zadek said. 'It's a risk transfer, from private investors to taxpayers.' He argues the shifting of financial risk onto public balance sheets raises questions about the sustainability and fairness of this model in an increasingly climate-unstable world. He pointed to remittances, an almost $700 billion annual flow to low- and middle-income countries, as a potential untapped source of resilience capital. 'That's more than all aid, development finance, and FDI combined,' he noted. The challenge is that we don't have obvious mechanisms to channel that into adaptation investment. There are promising ideas. Erlandsson discussed CoRAL Bonds (Contingent Resilience-Linked Bonds) that reduce interest payments for countries meeting resilience targets. Shakira Mustapha of the Centre for Disaster Protection emphasized the power of climate-resilient debt clauses (CRDCs), which allow countries to pause debt payments after disasters without defaulting. 'It is a time-bound deferral that is eventually repaid,' she said. 'It's not cancellation; it is a form of budget reallocation that's really important for ministries of finance, especially when you're fiscally constrained. Liquidity relief is valuable.' However, for such tools to be effective, they require global coordination, regulatory support, and most importantly, a willingness to rethink who carries the risk. Erlandsson also suggested that the window to socialize climate-related financial risk between the Global North and South is closing and said: 'Ten years from now, when some of the physical effects start hitting…that's when everyone's going to be in distress.' Ultimately, panelists agreed that the challenge is not just about tweaking financial instruments. It is about redefining the financial architecture that governs development and resilience. From empowering SMEs to strengthening domestic capital markets, from simplifying debt instruments to monetizing resilience, the message was clear: we need new rules for a new era. "We're heading towards something between two and three degrees and in that situation, our normal understanding of how to apply risk-based solutions with fancy financial engineering kind of stops working," said Zadek. The world may well be approaching a tipping point, not just ecologically, but economically. If finance doesn't evolve quickly, it may end up reinforcing the very risks we were hoping it would manage.
Time of India
17-05-2025
- Politics
- Time of India
Community decarbonization fund – Why India needs this?
Dr. Agyeya Tripathi has completed his Ph.D. and holds a Masters degree in Business Administration and another Masters in Electronics and Communication. He is a national resource person for Financial Inclusion under National Rural Livelihood Mission, Ministry of Rural Development, Government of India. LESS ... MORE India stands at a pivotal crossroads in its climate journey. On one hand, the country has made remarkable progress: the rapid expansion of renewable energy capacity, the mainstreaming of electric vehicles, and its leadership at forums such as COP28 have all signaled a firm commitment to decarbonization. On the other hand, the grassroots narrative—how rural and low-income communities are participating in, or benefiting from, this transition—remains underrepresented. In this article, I make the case for a Community Decarbonization Fund (CDF) in India: a dedicated financing mechanism to support small-scale, community-led climate action. Not only could such a fund help India achieve its ambitious targets—reducing emissions intensity by 45% of GDP by 2030 and reaching net-zero by 2070—but it could also reshape the way we think about equity, participation, and justice in the green transition. The Case for a Community Decarbonization Fund India's climate vulnerabilities are both acute and widespread. From erratic monsoons and frequent droughts to extreme heatwaves and cyclones, climate change is no longer an abstract threat—it is a lived reality for millions. In rural India, these vulnerabilities intersect with poverty, gender inequality, and energy insecurity, creating a multi-dimensional development challenge. At the same time, rural India remains deeply carbon-intensive. Approximately 40% of rural households still rely on traditional biomass for cooking, and more than 70% of irrigation depends on diesel-powered pumps. Small-scale transport—e-rickshaws, auto-rickshaws, shared vans—is also largely fossil-fuel dependent. These systems are not only environmentally unsustainable but also have serious implications for public health, economic productivity, and local livelihoods. What we need now is not just national ambition but local empowerment. A Community Decarbonization Fund would enable precisely that—by financing community-designed and -owned projects in renewable energy, energy efficiency, clean mobility, regenerative agriculture, and nature-based solutions. Financing the Last Mile According to Climate Policy Initiative (CPI), India requires nearly USD 170 billion annually in climate finance through 2030 to meet its goals. Current tracked flows stand at less than one-third of this amount, and most of it is directed towards corporate or utility-scale projects. Community-scale initiatives—those that are small, fragmented, but high-impact—are almost completely bypassed. Some government schemes like PM-KUSUM, FAME II, or MNRE's rooftop solar program offer subsidies and capital support, but uptake has been low, especially in underserved regions. Often, communities lack the institutional capacity to apply for or manage these schemes. In other cases, they simply fall outside the radar of formal finance. A Community Decarbonization Fund could bridge this gap by leveraging blended finance—combining public grants, concessional loans, CSR contributions, and even carbon market revenues. Delivery mechanisms can be routed through existing local institutions such as Self-Help Group (SHG) federations, Farmer Producer Organizations (FPOs), rural banks, and panchayats. The idea is not entirely new. Globally, models such as Scotland's CARES (Community and Renewable Energy Scheme) and the UNCDF's LoCAL Facility (Local Climate Adaptive Living Facility) have shown that community-led climate finance works—when accompanied by technical support, clear measurement frameworks, and participatory governance. India has the advantage of a robust community infrastructure: over 6 million SHGs, 10,000+ FPOs, and a well-developed system of local governance through the Panchayati Raj Institutions. These platforms already manage financial services, insurance schemes, and livelihoods programs. It is both logical and feasible to integrate climate finance into this ecosystem. A well-structured CDF would have the following design features: It could be hosted by a central financial intermediary like NABARD, IREDA, or even at the state level under SRLMs (State Rural Livelihood Missions) or SAPCCs (State Action Plans on Climate Change). CDFs should offer a mix of small grants, micro-loans, and performance-linked incentives. They must be able to support small ticket-size projects (INR 20,000 to 2 lakh) while keeping transaction costs low. Fund allocation decisions must involve local stakeholders—SHG leaders, community development officers, youth groups, and marginalized communities. This ensures relevance, inclusion, and accountability. Measurement, Reporting, and Verification (MRV) systems should be digital-first, low-cost, and community-friendly. Projects should also track co-benefits such as women's empowerment, improved health, and job creation. Projects that generate measurable emission reductions can be linked to voluntary carbon markets to earn revenue that flows back into the community, creating a virtuous cycle. To operationalize a Community Decarbonization Fund in India, the following steps are essential: Pilot CDFs in 3–5 states, focusing on climate-vulnerable districts and strong community networks. Issue national guidelines for CDF design under the Ministry of Environment, Forest and Climate Change (MoEFCC) in coordination with the Ministry of Rural Development. Enable CSR contributions to flow into certified CDFs by aligning them with Schedule VII of the Companies Act. Create state-level Technical Assistance Hubs to help communities plan, finance, and monitor decarbonization projects. Integrate CDFs with India's carbon market roadmap and the Green Credit Programme for long-term viability. The Time Is Now India has always been a country of innovation, resilience, and collective action. From the SHG movement to UPI to Jan Dhan Yojana, we have demonstrated the power of taking development to the last mile. Climate action deserves the same urgency and imagination. A Community Decarbonization Fund is not just another climate finance instrument—it is a transformational shift in how we view communities: not as passive beneficiaries, but as active agents of the green transition. If we are serious about achieving net-zero, reducing rural inequality, and building climate resilience, then we must start at the grassroots. The next chapter in India's climate finance story must begin there. Facebook Twitter Linkedin Email Disclaimer Views expressed above are the author's own.
