Sustainable Finance in India & Globally: What to Know Before You Raise Green, Social, Sustainability or Transition Capital in 2025

Sustainable Finance in India & Globally:

What to Know Before You Raise Green, Social, Sustainability or Transition Capital in 2025

Planning to raise sustainable finance in India or globally? Learn meaning, criteria, instruments, eligibility, documentation, reporting, and key Indian & global players plus a practical issuer-ready checklist to secure green and transition funding.

Sustainable development: why the funding gap is now a board-level risk and opportunity

India and the world are in a decisive decade for sustainable development not as a “CSR theme”, but as an economic re-wiring of energy, transport, buildings, agriculture, water, and industrial systems.

The logic is simple:

Climate and nature risks are financial risks. Physical risks (heat, floods, cyclones, water stress) disrupt assets, supply chains, insurance costs and credit quality. Transition risks (policy shifts, carbon pricing, technology disruption, changing consumer demand) can strand assets and hit margins.

Capital is moving toward measurable outcomes. Lenders and investors increasingly ask: What is the sustainability outcome? How will you measure it? Can you prove it?

Regulation and disclosure expectations are rising. Markets want consistent definitions of “green” and “sustainable”, and regulators are tightening rules to reduce greenwashing.

This is why sustainable finance is no longer “optional fundraising.” It is quickly becoming a lower-cost, higher-credibility route to capital, especially for businesses that can quantify emissions reduction, resource efficiency, climate resilience, social impact, or “just transition” outcomes.

India’s direction of travel is especially clear: in May 2025, India’s Ministry of Finance (Department of Economic Affairs) released a first draft framework of India’s Climate Finance Taxonomy for public consultation intended to improve classification and tracking of climate finance and help prevent greenwashing.

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What is sustainable finance (meaning in practical terms)?

Sustainable finance is the raising and deployment of capital in a way that explicitly integrates environmental, social, and governance (ESG) considerations into financial decisions so money flows to activities that are sustainable or credibly transitioning, while risk is priced more accurately.

In the real world, sustainable finance typically shows up as:

1) Use-of-proceeds instruments where money must be spent on eligible projects

Green bonds / green loans (renewables, energy efficiency, clean transport, green buildings, pollution prevention, etc.)

Social bonds / social loans (affordable housing, healthcare access, education, MSME financing, financial inclusion)

Sustainability bonds (a combination of green + social categories)

Global markets commonly align these with the ICMA Principles (Green Bond Principles, Social Bond Principles, Sustainability Bond Guidelines), updated as of June 2025.

2) Performance-linked instruments (where pricing changes if you hit targets)

Sustainability-linked bonds (SLBs) / sustainability-linked loans (SLLs)
The use of proceeds can be general corporate purposes, but the issuer commits to measurable sustainability KPIs (e.g., emissions intensity reduction, renewable share, water use, waste diversion). Miss the target and coupon or interest rates steps up.

3) Transition finance (for hard-to-abate sectors moving toward net zero)

Transition bonds / transition loans for industries like steel, cement, chemicals, aviation, shipping where “green overnight” is unrealistic but credible decarbonization pathways exist.

4) Blended finance and climate/impact funds

Concessional capital + commercial capital together (often via MDBs/DFIs/philanthropy) to de-risk projects like distributed renewables, adaptation, climate-resilient infrastructure, and MSME transitions.

The India context: what’s changing for issuers and borrowers?

India’s Climate Finance Taxonomy is coming and it matters

A national taxonomy becomes a “common language” for what counts as climate-aligned in India. The Government’s draft framework released for consultation in May 2025 signals a push toward clearer definitions, transition pathways, and reduced greenwashing risk.

Why this matters for fundraising:
If you are raising green/transition capital, your investor/lender will increasingly ask you to map your projects and metrics to:

a recognized taxonomy (India’s emerging taxonomy, plus global references),

robust project eligibility criteria,

and standardized impact reporting.

SEBI’s framework for ESG debt is a major issuer-side reference

In June 2025, SEBI issued a framework for ESG Debt Securities (other than green debt), which includes sustainability bonds and related instruments and links requirements to green debt-style provisions.

Practical implication: Listed issuance in India increasingly requires stronger disclosures, clear instrument labeling, and reporting discipline comparable to global expectations.

RBI climate-risk disclosure direction is strengthening

RBI issued draft guidelines titled “Disclosure Framework on Climate-related Financial Risks, 2024”, reflecting the move toward more structured climate-risk disclosures for regulated entities.
Even for non-financial corporates, this matters because banks and NBFCs will push climate-risk data requests down the chain (borrowers, projects, suppliers).

Global context: what international investors typically expect

Even if you raise capital in India, global pools of capital (foreign banks, PE, infra funds, bond investors) often benchmark to international norms:

ICMA Principles for labeled bonds (Green/Social/Sustainability) and market integrity.

UNFCCC definition of climate finance: finance supporting mitigation and adaptation actions across public and private sources.

Net-zero alliances and responsible banking frameworks shaping lenders’ transition expectations—e.g., UNEP FI Principles for Responsible Banking and coalitions like GFANZ supporting Paris-aligned finance approaches.

Also notable: global green bond markets are mature and increasingly data-driven. For example, the World Bank highlights that it launched the world’s first green bond in 2008 and continues issuing green bonds with project-level reporting expectations.

Key criteria: what you must get right to raise sustainable finance without greenwashing risk.

If you want sustainable finance that actually closes and attracts quality leads/investors focus on these non-negotiables.

1) A credible “sustainability story” linked to business strategy

Investors fund strategy, not slogans. You need to answer:

What problem are you solving, climate mitigation, adaptation, water, pollution, inclusion?

Why you (capabilities, assets, pipeline)?

How capital will translate into measurable outcomes?

2) Eligible project/activity criteria (use-of-proceeds)

For green/social/sustainability bonds or loans, define:

Project categories (renewables, EV mobility, green buildings, wastewater reuse, climate-smart agriculture, etc.)

Exclusions (e.g., new unabated coal capacity depending on investor policy)

Selection process (governance, approvals, screening tools)

Management of proceeds (tracking, ring-fencing, internal controls)

This aligns with the architecture promoted in the ICMA Green Bond Principles.

3) Measurable KPIs and impact metrics (the heart of credibility)

You should pre-define:

Baseline year and boundary (Scope 1/2/3 where relevant)

KPI definitions and formulas

Calculation method (e.g., tCO₂e avoided, energy saved in MWh, water saved in KL)

Data sources and audit trail

Common KPI examples that attract lenders/investors

Emissions intensity reduction (%)

Renewable electricity share (%)

Energy intensity reduction (kWh/unit)

Water intensity reduction (KL/unit)

Waste diversion from landfill (%)

Green building certifications achieved

Households served with clean energy / affordable finance

4) External review / assurance (often a deal-maker)

Market-standard options include:

Second Party Opinion (SPO)

Verification / assurance of impact reporting

Certification under recognized standards (case-by-case)

The goal is not paperwork, it’s to reduce investor perception of greenwashing and pricing risk.

5) Governance and reporting cadence

You need a reporting plan that matches the instrument:

Annual allocation reporting until full allocation

Impact reporting at least annually , often expected

For KPI-linked instruments: annual KPI performance reporting with any step-up/step-down mechanics

6) Transition finance credibility (if you’re in a hard-to-abate sector)

Transition finance succeeds when you show:

A science-credible pathway (near-, mid-, long-term targets)

Capex alignment (what portion of capex is transition-aligned)

No “capex greenwashing” (tiny green pilot, giant brown expansion)

Clear interim milestones and governance

This is where India’s evolving taxonomy direction can become a strong reference point over time.

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Instruments you can use to raise sustainable finance (issuer-friendly overview)

A) Green Bonds (India + global)

Best for: renewable energy developers, clean transport, green buildings, water/waste, industrial efficiency.

Issuer advantage: deep investor appetite + clear use-of-proceeds story
Issuer burden: strict proceeds tracking and impact reporting

B) Sustainability Bonds

Best for: businesses with both environmental and social capex (e.g., affordable clean housing, public transport, health+energy infrastructure).

C) Sustainability-Linked Loans/Bonds

Best for: corporates where proceeds are general corporate purposes but sustainability performance can be measured.

High-lead keyword angle: “lower cost of capital through KPI-linked pricing”

D) Transition Finance

Best for: steel, cement, chemicals, refining, heavy manufacturing, shipping, aviation.

Investor question: “Is your transition plan credible—and do you have a capex roadmap?”

E) Blended Finance

Best for: climate adaptation, MSME energy efficiency, distributed renewables, early-stage climate tech.

Where it shines in India: infrastructure pipelines, state-level programs, and sectors needing credit enhancement.

Major sustainable finance players (India)

Below is a practical map of “who matters” when raising sustainable finance in India—covering regulators, public finance institutions, markets, and capital providers.

1) Regulators and policy shapers

Ministry of Finance (DEA): driving the Climate Finance Taxonomy framework (draft released May 2025).

SEBI: disclosure and issuance frameworks for ESG debt securities and sustainability bonds (notably June 2025 framework).

RBI: climate-related financial risk disclosure direction (draft 2024 framework).

2) Public finance and development institutions (common partners in large pipelines)

NABARD (agri, rural, climate adaptation, water)

SIDBI (MSME finance, energy efficiency credit lines)

IREDA / PFC / REC (clean energy and power sector finance)

NIIF (infrastructure investment platform; often relevant for green infra capital structuring)

3) Indian banks and NBFCs (core debt providers)

Most large Indian banks and NBFCs now have ESG/green desks, and increasingly ask for:

emissions and energy data,

project eligibility and impact metrics,

climate-risk narratives for larger exposures.

4) Capital markets ecosystem

Stock exchanges, arrangers, legal counsel, SPO providers, ESG assurance firms, and rating agencies critical for labeled bond execution and post-issuance reporting discipline.

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Major sustainable finance players (global)

1) Multilateral Development Banks (MDBs) and DFIs

These institutions catalyze sustainable finance through lending, guarantees, policy support and blended structures:

World Bank (IBRD): green bond program and sustainable development bond ecosystem.

IFC, ADB, AIIB, EIB, AfDB (major climate/infra financiers; often anchor investors or de-risking partners)

2) Global climate funds

Green Climate Fund (GCF): a leading multilateral climate fund supporting developing countries (mitigation + adaptation).

3) Global frameworks and alliances shaping private capital flows

UNEP FI Principles for Responsible Banking: widely used by banks to align portfolios with sustainability outcomes.

GFANZ: private-sector coalition supporting net-zero transition finance practices.

ICMA Principles: global reference for labeled bonds’ integrity and disclosure.

4) Global asset managers, insurers, pension funds

They drive demand for labeled bonds and KPI-linked issuances—often requiring:

robust impact metrics,

third-party reviews,

and clear transition narratives.

Issuer-ready checklist: what to prepare before you approach investors/lenders.

Step 1: Define your “Sustainable Finance Use Case”

Amount to raise, tenure, currency, structure (bond/loan/blended)

Project pipeline (capex/opex), timelines, and capex governance

Sustainability objective: mitigation / adaptation / social / transition

Step 2: Choose instrument type (fast decision tree)

Clear eligible green projects? → Green bond/loan

Mixed green + social? → Sustainability bond

General corporate purpose but measurable KPI targets? → SLL/SLB

Heavy industry transitioning? → Transition finance + transition plan

Need de-risking? → Blended finance / guarantee

Step 3: Build your Sustainability Finance Framework

Include:

Use of proceeds / KPIs

Project evaluation and selection governance

Management of proceeds (tracking)

Reporting commitments (allocation + impact)
Aligned to recognized principles (e.g., ICMA).

Step 4: Data, MRV and assurance plan

Data owners and systems (ERP/EMS/utility bills/meters)

Methodologies (emissions factors, baselines)

External review strategy (SPO/assurance)

Step 5: Investor/lender outreach package (what wins mandates)

12–15 slide deck (investment thesis + sustainability thesis)

2-page “Green/Transition Fact Sheet” with KPIs

Pipeline table of projects with expected impacts

Draft term sheet preferences (pricing, covenants, step-ups)

Common mistakes that kill sustainable finance deals (and how to avoid them)

1. Vague “green” claims without measurable KPIs → fix with quantified baselines and clear formulas.

2. Weak proceeds governance → build internal controls and tracking from day one.

3. No transition plan (for hard-to-abate sectors) → publish credible milestones and capex alignment.

4. Treating reporting as an afterthought → investors price reporting risk; plan assurance early.

5. Mismatch between instrument and reality → don’t issue a green bond if 80% of capex is not eligible.

Closing: sustainable finance is now a competitive capital strategy

In India and globally, sustainable finance is shifting from niche to mainstream, supported by India’s emerging Climate Finance Taxonomy direction , tighter ESG debt frameworks , and global market principles like ICMA’s updated Green Bond Principles .

If you’re looking to raise sustainable finance, the winners will be the issuers who treat sustainability as measurable strategy with credible governance, KPI rigor, external validation, and transparent reporting. That’s what unlocks larger pools of capital, better terms, and stronger investor trust.