Transition finance can balance profitability with sustainability

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climate change concerns and setting carbon reduction targets. India has set ambitious goals to reduce its emissions intensity by 33-35% from 2005 levels by 2030 and to achieve 40% of its electricity generation from non-fossil fuel sources by then. These objectives are part of the country’s effort to achieve net zero greenhouse-gas-emissions by 2070.

While these targets are impressive, achieving them will require a massive shift in the way the country produces and consumes energy. Home to numerous legacy industries that are significant contributors to emissions, such as coal, oil and gas, and steel, India’s carbon footprint is large and will continue to grow as the economy expands. These sectors play an integral role in the Indian economy, providing employment to millions and factoring significantly in the country’s GDP.

The key challenge often faced by such growing countries is how to manage trade-offs between profitability and sustainability. One nascent solution in this scenario, providing a pathway to net-zero for carbon-intensive industries, is to shift towards more responsible operating models with ‘transition finance.’ These transition deals can complement green financing. Together, they represent the twin engines of a journey to net zero, with clean energy solutions rapidly deployed while reducing the emission intensity of legacy activities.

For a country like India, transition finance can play a pivotal role. Organizations are increasingly mandated to provide clear and consistent sustainability reports to regulators, investors and the wider community. Transition finance is the much-needed mechanism for these industries to invest in cleaner technologies, localize supply chains, and phase down (to eventually phase