Approach:

Introduction: Define green deposits and bring out the need for climate finance.

Body: Mention the RBI’s Framework for Acceptance of Green Deposits by Regulated Entities & list down the other steps taken by the Indian government to boost climate finance.

Conclusion: List down the other steps that we need to take in order to effectively tackle the menace of climate change.

Answer:

According to the IPCC 2018 report, climate finance is critical to tackling the issues posed by climate change. In this direction, India is also developing its Green Finance Ecosystem by promoting Green Deposits. A Green Deposit is an interest-bearing deposit received by regulated entities for a fixed period whose proceeds are earmarked for financing environment-friendly projects like financing renewable energy projects.

RBI’s Framework for Acceptance of Green Deposits of Regulated Entities lays down certain conditions that banks must fulfil to accept green deposits from customers:

1. Applicability: It will apply to all scheduled commercial banks, including small finance banks and deposit-taking non-banking finance companies (NBFC-D) such as housing finance firms.
2. Board-approved Financing Framework: Banks will have to come up with a set of rules or policies approved by their respective Boards that need to be followed while investing green deposits from customers and these rules need to be made public on the banks’ websites as well.
3. Regular disclosure of information regarding green deposits & projects: Banks will have to disclose regular information about the amount of green deposits received, how these deposits were allocated towards various green projects and the impact of such investments on the environment.
4. Independent third-party verification: A third party will have to verify the claims made by banks regarding the projects in which the banks invest their green deposits as well as the sustainability credentials of these business projects.
5. Allocation: RBI has come up with a list of sectors that can be classified as sustainable and thus eligible to receive green deposits. These include renewable energy, waste management, clean transportation, energy efficiency, and afforestation.
6. Exclusion: Banks will be barred from investing green deposits in business projects involving fossil fuels, nuclear power, tobacco, gambling, palm oil, and hydropower generation.
7. Intends to prevent greenwashing: Greenwashing refers to making misleading claims about the positive environmental impact of an activity. For example, a bank may advertise that their green deposits will have a huge positive impact on the environment, while the actual result may be minimal. A bank could also invest in projects that are not environment friendly, because such projects offer higher returns, under the guise of green investing.

Other steps taken by the government to boost climate finance:

• Encouraging Foreign Capital: The Government has permitted Foreign Direct Investment (FDI) up to 100% under the automatic route in the renewable energy sector.
• National Adaptation Fund for Climate Change (NAFCC): It was established in 2015 to bridge the gap between the need and the available funds to meet the cost of adaptation to climate change for the State and Union Territories of India that are particularly vulnerable to the adverse effects of climate change.
• The National Clean Energy Fund: It intends to encourage clean energy by funding research and development of new clean energy technology in both the fossil and non-fossil fuel industries.

In order to realize the goal of carbon neutrality, nations should direct sufficient funds towards adaptation projects and the developed nations should provide enhanced funding to developing nations. Further, nations need to clearly define climate finance in order to prevent developed nations from practising greenwashing by passing off loans as climate-related aid and transparency needs to be enhanced by promoting equitable representation of diverse stakeholders in the board which administers climate funds.