Climate change: Seize the opportunities

The term climate change often brings to mind natural disasters such as heat wave, floods and cyclones. While such events may or may not be attributed to climate change, the real effects of this crisis are seemingly invisible and yet far more consequential.

Rising sea levels, changing weather patterns and decreasing water resources may not have just a one-time colossal impact, but a more pronounced effect in altering urban and rural economic landscapes for good.

According to the World Bank, rising temperatures will impact multiple sectors of the economy, especially food, energy and water.

In India, extreme heat and changing rainfall pattern is expected to have a detrimental impact on the agricultural sector. Sea level rise may impact coastal ecosystems and degrade the quality of groundwater.

It is estimated that even on limiting the temperature rise to 2°C, India might still need to import double the food grains as compared to a no-climate change scenario.

According to the Stern Review, acting to reduce global emissions would cost the world 1-2 per cent of the global GDP a year, compared to the 5-20 per cent of the global GDP that it would cost by the end of the century, if the problem was ignored.

Impacts linked to climate change have strong material and economic pertinence for India, estimated to cut billions of dollars from its total GDP by 2050. Limiting greenhouse gas emissions and moving to a low-carbon economy is the only way to tackle the impact.

Yet, in this adversity lies a seed of greater opportunity. The challenges posed by climate change offer a new vista of opportunities for existing and new businesses going forward. Climate action is the need of the hour and must be tackled with a strategy of financing a low-carbon economy.

Financing India’s Nationally Determined Contributions (NDCs) will require innovative mechanisms to mobilise more than $2.5 trillion required to meet those targets. Green Bonds have been a successful tool in the realm of climate finance.

Since YES Bank’s issuance of India’s first green infrastructure bonds in February 2015, approximately $2.7 billion worth of green bonds have been issued in India.

Similar financial instruments will need to be conceptualised for water, agriculture and related infrastructure to provide depth to climate bond markets. But such instruments need to be bolstered by adequate systems, such as credit guarantees, for them to reach scale.

Blended finance is another structure that could be tailored for climate change projects. Resources need to be blended to create the requisite impact and scale needed for combating climate change, where development agencies provide the seed capital that businesses could leverage to generate effective returns on mainstream private capital deployed. The low-carbon pathway envisaged by India for its climate commitments, made at Paris, have led to new avenues for public and private action.

India’s steep target of achieving a renewable energy installed capacity of 175 GW by 2022 has been supported by developers and financiers, resulting in twice the cumulative solar installations in less than two years, reaching a capacity of 8.7 GW.

Energy efficiency is considered the cheapest source of energy and supportive policies like Partial Risk Guarantee Fund for Energy Efficiency and Partial Risk Sharing Facility will help boost support for deeper penetration of the concept in the industry through the Energy Services Companies model.

India has also committed to creating a carbon sink of 2.5-3 billion tonnes that is supported by the Indian Ministry of Road Transport and Highways through its National Green Highways Mission, which encourages corporates to ‘Adopt a Green Highway’. YES Bank recently became the first private institution to commit CSR funds towards creation of carbon sink through this program. The private sector remains a critical participant in taking the low carbon agenda forward.

Developmental challenges such as long-term food and water security, are other significant areas of opportunity.

Working towards water use efficiency in agriculture, which accounts for more than 80 per cent of total fresh water withdrawals, calls for new technologies across irrigation techniques, seed varieties and agriculture practices.

Traditional irrigation methods and instruments, like bawdis and tankas, which are ideal to conserve water, have to be married into the modern irrigation techniques like drip and sprinklers that use less water for irrigation.

Climate change risks and impacts are slowly, yet steadily, trickling into every sector of the economy and exacerbating developmental challenges. However, this present-day challenge has also opened flood-gates of opportunities for the public and private sector. Bolstered by the framework of Sustainable Development Goals and the ratification of the Paris agreement, it is time for stakeholders including policy makers, industry, academia and the civil society to not only take incisive action towards combating climate change but also harnessing the opportunities it provides.

The author is Group President and MD (Climate Strategy and Responsible Banking), YES Bank