BT Banking & Economy Summit: Transition to Green Economy will be costly & expensive, say experts

Though the recently approved Rs 19,744-crore National Green Hydrogen Mission looks like a lucrative deal for many big companies, but experts in the sustainable finance sector feel the transition process could be lengthy and costly.  

Speaking at Business Today’s flagship Banking & Economy Summit 2023 held in Mumbai on Friday, Vineet Rai, Founder, and Managing Partner, Aavishkaar Capital said that the Green Hydrogen Mission is costlier than the grey hydrogen mission, and someone has to pay for the transition, which is a big step at present. 

“Green Hydrogen Mission is way more expensive than grey hydrogen. Now how would you convince anyone to use green hydrogen, especially in the sector refinery, steel plants... someone has to pay for the transition,” Rai said at the session titled ‘Sustainable Finance in the Green Economy’. 

“The government will have to put in money, but we need to pull in a huge amount of capital,” he added.  

Green finance is a crucial component of all sustainable projects. The Reserve Bank of India describes green finance as the financial arrangements that are specific to the use of projects that are environmentally sustainable or projects that adopt the aspects of climate change. 

India has updated its climate change action plan which includes achieving 50 per cent of installed electric generation capacity through non-fossil fuel-based sources, reducing the emissions intensity of GDP by 45 per cent by 2030 compared to 2005 levels, and pledging to reach net zero by 2070 require financial commitments from Indian and international sources.

Banks and NBFCs as well as foreign investors (FDIs) in this case have a critical role in shaping the country’s move towards a low-carbon economy.  

Talking about feasible transition plans for the companies, Ankur Khurana, Managing Director, Corporate, Commercial and Institutional Banking, India, Standard Chartered Bank, said that at present the financers are just looking at whether companies have any transition plans in their hands or whether they are willing to invest for the big transition to. 

“We have been asking auto companies whether they are willing for the electric vehicle transition. It cannot happen overnight. A lot of banks and financial institutions around the world have drawn hard lines on financing thermal power projects. These are some positive signs. The financers and companies are coming together and are willing to work for the big transition,” said Khurana. 

The RBI in its recent Report of the Survey on Climate Risk and Sustainable Finance (July 2022) has highlighted that most of the banks will gradually reduce their exposure to high-carbon emitting businesses in the coming years. A few banks have either mobilised new capital for green lending and investment or set a target for incremental lending for sustainable finance.