The National Bank for Financing Infrastructure and Development (NaBFID) is critical in mitigating the problems of implementing the National Monetisation Pipeline (NMP) and financing projects in the National Infrastructure Pipeline (NIP). While NaBFID has made tremendous progress in addressing India’s infrastructure needs, certain areas require careful consideration to promote sustainable and climate-resilient growth.
What exactly is the National Bank for Infrastructure and Development (NaBFID)?
- The Government of India established the National Bank for Financing Infrastructure and Development (NaBFID) as a specialised financial institution.
- NaBFID is in charge of providing financial support, loans, and credit facilities for infrastructure projects in a variety of areas, including transportation, energy, water and sanitation, urban development, and social infrastructure.
- It prioritises projects that promote sustainable development, climate resilience, and inclusive growth.
- One of NaBFID’s primary goals is to carry out the National Monetisation Pipeline (NMP) and finance projects listed in the National Infrastructure Pipeline (NIP).
Climate change-related financial hazards
- Physical risks are related with climate change’s direct impact on physical assets and infrastructure. They are as follows:
- Property Damage: As extreme weather events such as hurricanes, floods, and wildfires become more often and intense, they can inflict major property damage, resulting in financial losses for property owners and insurers.
- Climate-related disasters can affect supply chains, resulting in delays, shortages, and increased prices for enterprises.
- Physical assets, such as properties in places vulnerable to sea-level rise or extreme weather events, may lose value as a result of the increased risk associated with climate change consequences.
- Risks of Transition: These dangers stem from the shift to a low-carbon economy and attempts to reduce climate change. They are as follows:
- Changes in Policy and Regulation: Governments establishing harsher environmental rules or instituting carbon pricing mechanisms can have an impact on the profitability and viability of specific industries, resulting in financial losses for businesses.
- Rapid developments in renewable energy technologies and changes away from carbon-intensive industries might render certain assets economically obsolete, such as fossil fuel reserves or outmoded infrastructure.
- Market Shifts: Shifts in market demand can occur from shifting consumer preferences and investor sentiment towards sustainability, altering the profitability and market value of enterprises operating in carbon-intensive industries.
- Liability concerns originate from legal and financial liabilities related with the effects of climate change. They are as follows:
- Litigation and Legal Actions: Businesses, particularly those in high-emission sectors, may face lawsuits and legal actions as a result of their contribution to climate change or insufficient adaptation efforts.
- Insurance Coverage: more frequency and severity of climate-related disasters might result in more insurance claims, putting pressure on insurance firms and potentially raising policyholder premiums.
- Investor Lawsuits: Investors may sue corporations for failing to disclose climate-related risks, misrepresenting their environmental performance, or mismanaging climate-related risks, which could result in financial settlements.
What is the need for green transition financing?
- Climate Change Mitigation: The transition to a low-carbon and sustainable economy is critical for reducing the effects of climate change. Green funding facilitates the implementation of renewable energy, energy efficiency measures, and other environmentally friendly technology. We can speed the decarbonization of numerous sectors and prevent global warming by shifting financial resources to green projects.
- Transitioning to a Sustainable Future: Green funding helps to develop and implement sustainable practises across industries. It encourages investments in clean energy, sustainable infrastructure, circular economic models, and eco-friendly technologies. Green transition financing is required to shift away from resource-intensive and polluting practises and towards more sustainable and resilient systems.
- Green Financing Promotes Innovation and Economic Growth: Green financing promotes innovation and economic growth. Renewable energy, energy-efficient technologies, and sustainable infrastructure investments provide new markets, industries, and job possibilities. It promotes cutting-edge technology research and development, putting countries and enterprises at the forefront of the green economy.
- Managing Environmental and Social Risks: Green transition financing aids in the management of environmental and social risks associated with unsustainable practises. It funds programmes that prioritise environmental stewardship, biodiversity conservation, and social inclusion. We can limit negative consequences on ecosystems, communities, and vulnerable populations by including environmental and social factors into financial decisions.
- Meeting SDGs: Green financing is in line with the United Nations Sustainable Development Goals (SDGs). It helps realise goals including inexpensive and clean energy, sustainable cities and communities, responsible consumption and production, climate action, and biodiversity protection. Projects that contribute to the SDGs must be funded in order to create a more fair and sustainable future for all.
- Managing Investor Demand and Risk: Investors are increasingly expecting sustainable and responsible investing solutions. Green financing allows investors to match their portfolios with environmental goals and sustainability ambitions. It also assists in the management of financial risks connected with climate change and unsustainable practises by shifting investments to climate-resilient assets and initiatives.
- International Commitments and Agreements: Many countries have signed international treaties such as the Paris Agreement, which aims to keep global warming well below 2 degrees Celsius. Financing the green transition is critical for countries to meet their climate pledges and contribute to global climate change initiatives.
National Infrastructure Pipeline (NIP) flaws
- Inadequate Climate Resilience Integration: The NIP’s emphasis on traditional grey infrastructure and insufficient integration of green and blue infrastructure is a serious flaw.
- Lack of extensive Sectoral Needs Assessment: To guarantee that investments are targeted in the most vital areas, the NIP requires a more thorough and extensive assessment of sectoral needs. Without a detailed examination of sector-specific requirements, there is a danger of resource misallocation and inadequate prioritisation of critical infrastructure projects.
- Inadequate Private Sector Engagement: While the NIP acknowledges the need of public-private partnerships (PPPs), India’s experience with PPPs has been uneven. Cost overruns, delays, and disagreements have occurred in PPP projects.
- Limited Attention to Rural Infrastructure: The NIP focuses primarily on urban infrastructure development, potentially ignoring the crucial needs of rural communities. Addressing the rural infrastructure deficit, including connectivity, healthcare, and education, is critical for equitable development and inclusive growth.
- Financing Obstacles: While NaBFID has made progress in loan disbursement, the flow of funds to sustainable projects and tackling climate-related concerns continues to be a significant challenge. There is a need to improve expertise in recognising climate hazards, linking them with financial concerns, and precisely quantifying them.
- Limited Transparency and Accountability: It is critical to ensure transparency and accountability in the implementation of the NIP. To track project progress, expenditure, and outcomes, clear monitoring and reporting methods should be established.
Source: https://www.c40.org/what-we-do/influencing-the-global-agenda/financing-the-green-transition/