Context:

• India’s G20 Presidency highlighted a fundamental crisis in the 20th-century multilateral system—its failure to provide transparent, adequate and equitable global climate finance.
• As climate threats intensify, the existing financial architecture involving the Multilateral Development Banks (MDBs), Green Climate Fund (GCF) and the Global Environment Facility (GEF) remains slow, exclusive, and ineffective, particularly for the Global South.

Reasons for the Failure of the Current Climate Finance Architecture:

• Broken multilateralism:
  • Climate threats are transboundary, requiring an effective, equitable multilateral response.
  • The Global South instead faces opaque accounting, unmet commitments, and creditor-centric systems.
• Ambiguity over climate finance:
  • Key unresolved questions - What counts as climate finance?; Who defines it?; Is it a grant, concessional loan, or repackaged development aid?
  • Ambiguity erodes trust and delays investment.
  • India’s own requirement - $467 billion by 2030 for hard-to-abate sectors.
  • Global requirement - Over $7 trillion annually, but actual flows remain low.

Structural Weaknesses of MDBs and Climate Funds:

• Lack of accountability and transparency: MDBs, GCF and GEF fail to demonstrate clear, measurable climate outcomes.
• Concentration of power: Decision-making remains dominated by a few wealthy nations.
• Limited access for developing countries: Slow, complex procedures delay funds. High borrowing costs worsen debt burdens, limiting climate action.

India’s Leadership in Reforming the System:

• Pushing for MDB reform (G20 presidency):
  • MDBs must move beyond lending public money to mobilising private capital at scale.
  • Tools such as guarantees, blended finance and de-risking mechanisms needed to redirect investments toward adaptation, resilience and Loss & Damage needs.
• Demand for clear climate finance standards: At COP26 and COP28, the Indian PM emphasised -
  • Need to mobilise $1 trillion annually from developed countries.
  • Need to track climate finance as rigorously as mitigation.

India’s Domestic Climate Finance Architecture:

• Draft climate finance taxonomy:
  • Defines scientific, transparent criteria for “green/climate-aligned” investments.
  • Enhances investor confidence and credibility of India’s green markets.
• Growing domestic climate finance base:
  • Over two-thirds of India’s climate finance is domestic.
  • Strong contributions from public budgets, development banks, and sovereign green bonds.
  • India plans to mobilise ₹10,000 crore more in green bonds during FY 2025–26.
• Regulatory strengthening: RBI and SEBI formulating stricter norms on green disclosures and accountability.
• Long-term investment requirements: India needs over $10 trillion to achieve Net Zero by 2070.

Challenges Ahead:

• Ambiguity in climate finance definition undermining trust.
• Slow and complex procedures for accessing global climate funds.
• Power imbalance within MDB governance structures.
• Insufficient private sector investment in high-risk adaptation sectors.
• Debt distress forcing countries to choose between repayment and resilience.
• Inadequate global climate finance mobilisation compared to multitrillion-dollar needs.

Way Forward:

• Transparency and common standards: Adoption of globally harmonised standards, including taxonomies and disclosure norms.
• Democratised governance of MDBs: Broader representation for developing countries in decision-making. Reduced dominance of wealthy nations.
• Innovative finance mechanisms: Use of blended finance, guarantees, insurance mechanisms, and debt-for-climate swaps. Prioritising Loss & Damage, adaptation and resilience financing.
• Re-engineering global frameworks: Shift from creditor-driven approaches to vulnerability-sensitive, climate-forward frameworks.

Conclusion:

• India is demonstrating through its G20 Presidency and domestic climate finance reforms that pragmatic, accountable, and transparent leadership can reshape global climate governance.
• For the world to realise Vasudhaiva Kutumbakam — “One Earth, One Family, One Future”, the international community must rebuild climate finance systems to be fair, effective and equitable.
• Only then can global climate action match the scale of the planetary crisis.