India’s just transition needs a robust financing ecosystem: Report

The report said that SEBI and RBI can integrate just transition metrics into disclosures, lending norms, and sustainable finance tools

India needs to build an inclusive framework for just transition, especially regarding how to fund it, as the country moves through an energy transition. A just transition financing ecosystem that combines environmental ambition with socio-economic inclusion is essential, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).

In order for this to happen, a coordinated, multistakeholder effort is required. This will involve bringing together regulators, financial institutions, ministries, corporates, and civil society, so that policies, capital flows, and implementation strategies are aligned towards a common goal of building a financing ecosystem, according to the report. 

However, results will be achieved in phases, found the report. At first, short-term pilots and targeted incentives will probe the effectiveness of such a strategy, followed by medium-term regulatory scaling, and long-term structural reforms, so that just transition principles become part of policies of all the industrial sectors and institutions.

The report highlighted that as India shifts away from fossil fuels, the economic policies put in place for the transition should support workers and communities who are dependent on fossil fuel-intensive industries like coal, steel, cement, and auto. 

Top-down approach

According to the report, if top level institutions like the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) integrate just transition metrics into disclosures, lending norms, and sustainable finance tools like Priority Sector Lending (PSL) and Sustainability Linked Loans, then just transition financing ecosystem will get a huge boost. 

According to the report, financing instruments such as Green Deposits, and Sovereign Green Bonds can be modified to include just transition- aligned eligibility and impact criteria.

“For instance, SEBI has initiated sustainability reporting through Business Responsibility and Sustainability Reporting (BRSR) and ESG-linked products, but JT indicators are still missing. Expanding BRSR to include social risk and JT metrics could help channel capital toward companies with credible transition plans,” says Labanya Prakash Jena, co-author and sustainable finance consultant at IEEFA.

This is necessary because even though sustainable finance in India is evolving and there is private funding for renewable energy projects, funding for socio-economic needs like worker reskilling, community resilience, and regional economic diversification fall short, found the report. 

“Capital can be mobilised through public and private sources, guided by ministries via blended finance and incentives. Corporates and their supply chains are key to implementation, especially in high-emission sectors,” says the report’s co-author, Gaurav Upadhyay, Energy Finance Specialist, IEEFA. 

Ministries need to prioritise just transition

The Ministry of Finance (MoF), the Ministry of Environment, Forest and Climate Change (MoEFCC), and NITI Aayog have an important role in shaping the strategic and fiscal frameworks necessary for the just transition, according to the report.

“The MoF can embed JT into India’s fiscal framework by aligning green taxonomies, allocating resources, and creating a dedicated fund for affected regions and communities,” says Sangeeth Raja Selvaraju, Policy Fellow (India and ASEAN) at the Grantham Research Institute at LSE and one of the authors of the report.

As for the MoEFCC, it can support just transition by aligning and integrating it into climate and environmental policies. The report states that by leveraging programmes such as the Green Skill Development Programme and Green Credit Programme, and tapping into international funds like the Green Climate Fund, affected communities can be shown the path for alternative livelihoods.

While corporates are integrating just transition into their business planning, challenges lie in the high costs related to transition. For MSMEs, limited access to finance presents significant barriers, as well as supply chain constraints, the report pointed out. 

There needs to be clearer policy guidance, supportive regulation, and structured engagement with investors. “The government must also look to boost state-level engagement, especially in coal-dependent regions, as many states lack the technical capacity to design, finance, or implement JT-aligned programmes,” says Jena.

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