Enhancing India’s Readiness to Climate Finance

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Political & Strategic functions: Enhancing India’s readiness to access and deliver international climate finance 1. India does not have a coherent national climate finance strategy, or a central institution with a mandate to coordinate the access and delivery of climate finance in the country. 2. There have been limited efforts to assess the impact of climate change on the national economy, and to prioritise climate-related investment within national and/or sectoral budgets, based on a detailed needs assessment. 3. The private sector has had limited engagement with the Government of India in climate change decision-making, and in coordinating a national financing strategy that encourages private sector investment in climate-related activities. Financial function: 4. DFIs in India have limited capacity to implement climate-related projects beyond a narrow range of themes, sectors, and geographies. India therefore faces challenges in developing a pipeline of bankable projects, which could help remove barriers for project financers and increase climate-related investment in the country. 5. Climate finance delivery institutions (e.g. DFIs) have limited ability to match finance needs with a blend of climate finance sources and instruments. 6. Indian DFIs have capacity constraints in meeting international fiduciary standards (sound financial management, transparency, independence, and professional standards) and social & environmental safeguards. MRV function: 7. India has limited experience in measuring, reporting, and verifying domestic, private, and international climate finance. Systems for tracking volumes of climate finance have not been systematically applied, and estimates on the impact of climate finance spend are even more limited. Ref: Ricardo-AEA/R/ED59216/Final Report 37
Enhancing India’s readiness to access and deliver international climate finance 6 Lessons from peer developing countries Chapter 5 highlighted seven specific areas where India shows room for improvement if it wishes to access and deliver larger volumes of climate finance in the future. With the operationalisation of major new funding streams like the GCF on the horizon, it is important that India looks to countries where similar issues have arisen and learn from any lessons that have been generated to-date to address its own gaps. Chapter 6 examines the climate finance performance of a number of peer countries – Brazil, China, Indonesia, Mexico and South Africa – in an attempt to gather readiness lessons that are applicable to India. 40 All of these countries have faced similar issues to those that India faces, for example in mainstreaming climate change into development strategies and action plans, improving financial management capabilities, and improving coordination in accessing international funds. However each country has developed a different response to these (and other) issues, reflecting the unique institutional context of each peer country, and given India a number of lessons and options to follow. In selecting these five countries, a number of important factors have been taken into consideration: How their readiness performance aligns to the areas where India shows significant readiness gaps and weaknesses. Whether the countries have strong experience accessing international climate finance. Whether the countries have similar institutional design and/or capacity, relative to India. Where countries have institutions that can provide examples of strong NIE-type functions and innovative financing vehicles. In the following section the experience from these countries is brought to bear on the seven readiness gaps highlighted at the end of Chapter 5. To start, each readiness gap will be outlined in brief, with an explanation for the conceptual importance of that gap. Next, lessons and options from peer countries that are relevant to India will be provided. These will combine high-level messages along with detailed guidance on how other countries have addressed a particular gap. Where relevant, context will be provided to explain how initiatives/actions to address readiness gaps in other countries compare to those being undertaken in India. The lessons, guidance, and analysis for India will then be incorporated into the final recommendations, which are outlined in Chapter 7. 6.1 Lessons & options for India to address its readiness gaps Readiness Gap 1 India does not have a coherent national climate finance strategy, or a central institution with a mandate to coordinate the access and delivery of climate finance in the country. Plans to access and deliver climate finance require effective coordination among relevant ministries and authorities at national and sub-national level, as well as coordination with non-governmental actors like the private sector and civil society. At the national level, mandates and roles typically need to be defined between ministries of environment, planning, ministries of finance and sectoral ministries (agriculture, transport, urban development) and agencies (research, training and financing). These roles and responsibilities may differ with regard to accessing, prioritising, disbursing, implementing and monitoring implementation of climate finance. However at present in India, 40 In developing the lessons from peer countries for Chapter 6, the project team conducted interviews with representatives from some of the main international climate finance readiness initiatives, including the GEF, the Adaptation Fund, the German Readiness Programme (implemented by GIZ, KfW, UNDP, UNEP, and WRI), the National Climate Finance Institutions Support Programme, UNDP, and the World Bank. These interviews were backed by desk research on key studies operating in India’s peer countries. Ref: Ricardo-AEA/R/ED59216/Final Report 38
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Enhancing India’s Readiness to Climate Finance

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