Navigating India's Climate Finance Transition: Key Insights from Oxford's Sustainable Finance Research
- Clara Cecil
- 7 days ago
- 6 min read
Together with the Oxford Climate Society (OCS) and the Oxford India Centre for Sustainable Development (OICSD), the Oxford Sustainable Finance Student Society was privileged to host a comprehensive presentation on the India Transition Finance Program (ITFP), part of Oxford's broader initiative in sustainable finance research. Led by Dr. Gireesh Shrimali, Head of Transition Finance Research at the Oxford Sustainable Finance Group, this session provided valuable insights into one of the world's most critical climate finance challenges: how India can transition to a low-carbon economy while managing unprecedented physical and transition risks.
The Oxford Sustainable Finance Ecosystem
The Oxford Sustainable Finance Group operates across three interconnected pillars that form a comprehensive approach to climate finance research:
Research & Analysis: Developing cutting-edge methodologies for climate risk assessment and transition planning
Education & Training: Building capacity within financial institutions and regulatory bodies
The Lab: Creating practical tools and frameworks for industry application
The Sustainable Finance Group offers a unique focus on Transition Finance, with specialized programs including Environmental Stress Testing and Scenarios (ESTS), Net Zero Transition Plans (NZTP), Energy Transition Risk and Cost of Capital (ETRC), and the India Transition Finance Program (ITFP).
Why India? A Perfect Storm of Climate Risks and Opportunities
Physical Risk: Climate Vulnerability at Scale
India presents a compelling case study for climate finance research due to its extraordinary exposure to physical climate risks. Recognising the threat of climate change to the world and its own territory, India has committed to achieving net zero emissions by 2070. Experts estimate the transition to net zero will cost India US$10–19 trillion by 2070. The research highlighted several critical factors:
India ranks among the top five countries globally most exposed to rising temperatures, with projections showing potential increases of up to 5°C by 2100
The frequency and intensity of extreme weather events—heatwaves, floods, and droughts—have escalated dramatically
Economic losses from climate change could reach 3-10% of GDP by 2100
Transition Risk: The World's Third-Largest Emitter
While India accounts for approximately 7% of global greenhouse gas emissions, the context is nuanced. The country's cumulative historical emissions represent only 3.2% of the global total, and per capita emissions remain at just 40% of the global average. However, as India continues its rapid industrialization, its emissions trajectory becomes increasingly critical for global climate goals.
Regulatory Evolution: Building the Framework
In 2024, the Reserve Bank of India (RBI) released a draft framework for regulated entities, including banks and NBFCs, to disclose climate-related financial risks. The regulatory landscape is evolving across multiple fronts:
Reserve Bank of India (RBI): Draft guidelines requiring TCFD-style climate risk disclosures across governance, strategy, risk management, and metrics.
Securities and Exchange Board of India (SEBI): Mandating climate risk disclosures in Business Responsibility and Sustainability Reports (BRSR) for top listed companies.
National Climate Commitments: Net-zero by 2070 with interim 2030 targets including 45% emissions intensity reduction and 50% non-fossil electricity generation.
Carbon Market Development: In 2022, the Indian government amended the Energy Conservation Act, empowering the establishment of a domestic carbon market (likely start by mid of 2026).
Research Findings: Quantifying Transition Risk in India's Power Sector
Differentiated Impact Analysis
The ITFP research revealed striking variations in how climate transition affects different energy subsectors:
Fossil Fuel Companies: Substantial losses of up to 100%, with coal, oil, and gas companies facing the most severe impacts.
Renewable Energy: Moderate gains of less than 50%, positioning these companies as clear beneficiaries of the transition.
Hydropower: Minimal impact due to its established low-carbon profile
Nuclear Energy: Mixed outcomes depending on policy frameworks and technological developments.
Cash Flow at Risk (CFaR) Analysis
The researchers developed detailed Excel models to quantify transition risk for six leading Indian power companies, revealing stark differences:
The analysis reveals that the Indian power sector faces an average loss of nearly 50% due to the higher concentration of fossil fuel assets relative to renewable capacity.
The Importance of Policy Timing
A crucial finding from the research emphasized that early policy action significantly reduces transition losses. The analysis showed that implementing climate policies five years earlier could reduce losses for coal companies by up to 50%, highlighting the critical importance of proactive rather than reactive policy frameworks.
Physical Risk: Beyond the Obvious
Portfolio-Level Tail Risk Analysis
Using Monte Carlo simulations, the research team quantified how extreme climate events translate into financial risks for power sector portfolios. Key findings included:
Spatial Correlation Matters: Different assumptions about how flood impacts correlate geographically can lead to significant underestimation of results—up to 200% in some scenarios.
Geographic Diversification Benefits: Indian power assets' geographic dispersion across the country provides natural risk reduction for diversified portfolios.
Insurance as Risk Mitigation: Value at Risk increases significantly (up to 100%) in the absence of proper insurance coverage—a particular concern in developing markets where insurance penetration remains low.
The Financing Gap: Scale Meets Reality
As per "Landscape of Green Finance in India" by CPI, India will require a substantial INR 162.5 trillion (USD 2.5 trillion) by 2030 to meet its Nationally Determined Contributions. However, tracked green finance flows still cover only about a third of this requirement.
The presentation highlighted that India currently achieves less than half the annual investment required for its climate transition. This massive financing gap—despite India's ambitious net-zero pledge by 2070, a significant USD 10 trillion (nearly thrice its current gross domestic product) funding gap exists—underscores the urgency of innovative financing mechanisms and international climate finance flows.
Cost of Capital: The Hidden Challenge
Understanding the cost of capital emerged as a critical factor in India's transition finance landscape. The research emphasized that low-carbon transition is extremely sensitive to the cost of capital, making it essential to understand:
What drives the cost of capital for green technologies
How different risk components affect borrowing costs
What policy interventions can reduce capital costs for clean energy projects
Looking Forward: Research Priorities and Policy Implications
Immediate Research Focus
ITFP has exciting and ambitious plans for future research, including:
Climate Risk (In Progress):
Risk propagation through supply chains and financial networks
Top-down macro stress testing frameworks
Transition Plans (Planned):
Disclosure frameworks and credibility assessments
Transition finance mechanisms similar to ongoing research in Thailand with the Bank of Thailand
Cost of Capital Analysis (Just Starting):
Risk premia decomposition and solutions for addressing component risks
Enabling finance for transitioning to a low-carbon future
Policy and Investment Implications
The research raised several critical questions that extend beyond technical analysis:
Risk Distribution: As one attendee noted, while India pursues both green and fossil fuel investments, the ultimate question becomes: who bears the stranded asset risks? Often, it's taxpayers who end up funding and bearing these risks.
Voluntary Disclosure Challenges: Companies performing well on climate metrics want to disclose their progress, while poor performers avoid disclosure due to reputational risks—creating an adverse selection problem in climate risk assessment.
The Role of Development Finance: Leverage and debt financing may not be the optimal tools for development finance institutions (DFIs) to deploy their capital in transition finance, suggesting the need for more innovative financial structures.
Key Takeaways for Sustainable Finance Practitioners
Measurement Drives Management: Quantifying climate risks enables better risk management and more informed capital allocation decisions
Timing Is Critical: Early policy intervention dramatically reduces transition costs and risks
Diversification Benefits: Geographic and technological diversification can significantly reduce portfolio-level climate risks
Insurance Infrastructure: Developing robust insurance markets is essential for managing physical climate risks
Integrated Approach Needed: Successful climate finance requires coordination between central banks, securities regulators, and development finance institutions
The India Transition Finance Program represents more than academic research—it provides a roadmap for one of the world's largest economies to navigate the complex intersection of development needs, climate vulnerability, and financial stability. As India's draft Climate Finance Taxonomy aims to guide green investments, prevent greenwashing, and support its net zero target of 2070, the insights from Oxford's research will prove invaluable for policymakers, investors, and financial institutions globally.
For the sustainable finance community, India's transition offers both an opportunity to test new methodologies and a preview of the challenges that other emerging economies will face as they pursue their own low-carbon transitions. The work of the Oxford Sustainable Finance Group provides essential tools and frameworks for navigating this complex landscape successfully.
The Oxford Sustainable Finance Student Society bridges academic research with practical applications, providing students with access to cutting-edge insights that will shape the future of sustainable finance. For more events and insights, visit www.osfss.org.
The Oxford India Centre for Sustainable Development (OICSD) is a unique Oxford-India partnership created to advance research on the complex challenges and opportunities posed by sustainable development in India. For more information, visit https://www.some.ox.ac.uk/the-oicsd/.
The Oxford Climate Society aims to inspire and educate the next generation of climate leaders, take action towards ambitious emission reductions in Oxford, and provide platforms for academic, artistic, and social engagement with the climate crisis. For more information, visit: https://oxfordclimatesociety.com/.
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