FinTechUnderstanding the Role of Fintech in Green Financing in India

April 21, 20230


New investment models will be needed to implement the Paris Agreement and meet the Sustainable Development Goals (hereinafter referred to as “SDGs”). In fact, the latter will necessitate additional investments of 2 trillion to 3 trillion dollars annually, as well as 1.4 trillion dollars annually in developing nations, including 343 billion to 360 billion dollars for low-income countries and 900 billion to 944 billion dollars for lower-middle-income countries.

The Paris Agreement’s primary goal of ensuring that the increase in the global average temperature stays “well below” 2°C and achieves the SDGs will require trillions of dollars in new investment, including incremental investments to ensure that long-term investments like infrastructure are low-carbon and climate-resilient.

According to the 2014 United Nations Conference on Trade and Development (hereinafter referred to as “UNCTAD“), the total yearly investment needs for the world are estimated to be between 5 trillion and 7 trillion dollars, with between 3.3 trillion and 4.5 trillion of those needs coming from poor nations in critical SDG sectors (comprising infrastructure, food security, climate change mitigation and adaptation, health, and education).

According to the Organisation for Economic Cooperation and Development (hereinafter referred to as “OECD”) in 2017, present investment levels are only around one-third of what is needed, or about 1 trillion dollars per year. To maintain prosperity, eradicate poverty, and combat climate change, developing countries in Asia would need to invest an estimated 26 trillion dollars in infrastructure by 2030 (or 1.7 trillion dollars annually), including 4.7 trillion dollars for power and 8.4 trillion dollars for transportation.

Owing to limited public budgets, private capital must constitute a large proportion of this new investment. The Paris Agreement includes a commitment to “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” (United Nations Framework Convention on Climate Change (UNFCCC) 2015, Article 2.1 (c)). Ensuring that capital flows to sustainable investment has therefore become an important focus for policymakers.

Fintech broadly refers to “companies or representatives of companies that combine financial services with modern, innovative technologies”. Green finance is said to constitute “financial investments flowing into sustainable development projects and initiatives, environmental products, and policies that encourage the development of a more sustainable economy”.

Global policy goals will be more easily attained with the help of new technological advancements like blockchain that could hasten the flow of capital to a more sustainable economy as well as financial instruments like green bonds that satisfy the risk-return expectations of investors for sustainable investments.

The Reserve Bank of India is extensively involved with its global counterparts with coordination from the Financial Stability Board and primarily endorsing the G-20, who have stated that four building blocks are needed for addressing climate-related financial risks. These four building blocks, viz., disclosures, data, vulnerability analysis, and regulatory and supervisory practises and tools, are prerequisites for a resilient financial system when augmented by informed decision-making.

The Reserve Bank of India has also authored a discussion paper titled “Discussion Paper on Climate Risk and Sustainable Finance” where they have elaborately analysed India’s stance with regards to Sustainable Financing and how Regulated Entities can positively contribute to achieving SDG’s.


The concept of “Green Fintech” is a recent innovation in the fintech industry, where one can observe the expansion of cutting-edge digital solutions with greener objectives that guarantee sustainability over the long term. They develop fintech solutions that offer carbon trading platforms, investments in renewable energy, green bonds, the planting of forests, and many more concepts by utilising cutting-edge technology like Artificial Intelligence, Internet of Things, Machine Learning, Blockchain, and Data Analytics, among others. It has all the same features as other fintech products; the only distinction is the intended outcome.

The literature exclusively on green fintech has emerged recently but is very limited. Most of them have studied isolated aspects of green fintech. A comprehensive outlook on the concept is yet to be made. Many have also outlined the potential interconnections between fintech and sustainable finance, which include the detection and prevention of greenwashing, green crowdfunding, applications of distributed ledger technology like blockchain, integration of blockchain with smart contracts and big data, integration of DLT with AI for disclosure and benchmarking in the climate finance market, etc.

Additionally, they have similar worries about the need for expensive hardware and software, high energy consumption, systemic and cyber risks, data security, accessibility, portability, interoperability, fine-grained segmentation, financial exclusion, and flawed algorithms that result in incorrect assessments.

One up-and-coming area to be studied is cryptocurrencies, specifically as a subfield of green fintech. The energy requirements are still a worry, but green fintech has the ability to manage a lot of people utilising technologies like significant data analysis, IoT, and AI without charging additional charges. Coal is used to meet the energy needs of cryptocurrency miners, which results in large emissions of carbon dioxide and other greenhouse gases. As a result, rather than using unsustainable fossil fuels, bitcoin miners should instead use sustainable alternatives like solar, wind, and geothermal energy.

There are numerous classifications and definitions of fintech. Although there are few exceptions, such industry and regulatory reporting on green fintech still needs to be investigated. The Green Digital Finance Alliance and the Swiss Green Fintech Network jointly established the world’s first green fintech categorization on May 30, 2022, with assistance from the Swiss State Secretariat for International Finance.

The classification was developed taking into account many fintech reports, including those by the Financial Stability Board, the Bank of International Settlements, and many others. The paper formerly titled “A Green Fintech Taxonomy and Data Landscaping” has been renamed Green Fintech Classification in response to public comments. The report defines each green fintech category and cites examples worldwide. It proposes the following:

“Eight green fintech categories, which include green digital payment and account solutions, green digital investment solutions, digital ESG-data and analytics solutions, green digital crowdfunding and syndication platforms, green digital risk analysis and insure-tech solutions, green digital deposit and lending solutions, green digital asset solutions, and green Regtech solutions.”

The Reserve Bank of India, in their Framework for Green Deposits dated April 11, 2023, under Paragraph 2(c), states as follows:

“Green finance” means lending to and/or investing in the activities or projects meeting the requirements prescribed in paragraph 7 of these guidelines that contribute to climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives, including biodiversity management and nature-based solutions.


1. Climate Finance

The Climate Chain Coalition was recently established by a large coalition of more than 40 organisations, including the International Emissions Trading Association, formerly the Carbon Disclosure Project, the Energy Web Foundation, and Power Ledger, “to cooperatively support the application of Distributed Ledger Technology including the ‘Blockchain’, and related digital solutions to addressing climate change. The Climate Chain Coalition effort and “the potential of blockchain technology to contribute to better climate action and sustainability” have received UNFCCC approval.

Blockchain holds great promise for generating new financial flows for climate investments. Essentially, blockchain enables new forms of finance, such as crowdfunding and dynamic funding mechanisms from private finance markets, to address global climate finance problems. Climate finance and green investment, in general, provide the best foundation for using Blockchain as a ‘fintech’ to combine technology and finance.

As a feedback loop, the energy sector provides valuable production data that is very useful for financial product research and development, while new financial products benefit the energy sector reciprocally. Among fintech such as big data, cloud computing, machine learning, and distributed computing technology, Blockchain is the most impactful and revolutionary to bottom-level (green) finance architecture, particularly in terms of lowering regulatory costs and expanding regulatory boundaries.

2. International Financial Innovation and Green Bonds

Financial instruments capable of mobilising public and private capital for low-carbon, climate-resilient investment is thus critical to success. Green bonds, which are fixed-income instruments whose proceeds are used by the issuer for environmental projects, are one of the most dynamic instruments in the field of sustainable finance. Investor demand for these instruments has increased over the last decade in response to shifts in policy and capital allocation as a result of growing concerns about climate change and sustainability. The global issuance of green bonds is expected to increase to between $175 billion and $200 billion in 2018, up from $155 billion in 2017.

In Europe, the Nordic countries have pioneered the use of green bonds to mobilise capital for investment in sustainable infrastructure and related sectors. Beginning in the 1970s, Sweden, Norway, Denmark, and Finland have demonstrated leadership in environmental policy, regulation, and changes in behaviour consistent with a sustainable economy. The Nordic countries have also pioneered the use of green bonds to mobilise capital for sustainability goals.

3. Subnational Pooled Financing Mechanisms

One of the key financial innovations at the institutional level for green finance has been the use of a structure known as Subnational Pooled Financing Mechanisms (hereinafter referred to as “SPFMs”) as a means of raising sustainability-oriented capital from financial markets. An SPFM aggregates the financial needs of members into a Pooled Financing Agency (hereinafter referred to as a “PFA”), which then issues debt and distributes the proceeds from the bond offering to its members. As the International Institute for Sustainable Development (hereinafter referred to as “IISD”) (2018) explains:

Most SPFMs require the set-up of a Special Purpose Vehicle (hereinafter referred to as an “SPV”) that has transparent governance structures and processes. These SPVs, whose structure depends on national laws, are responsible for contracting debt and making debt service payments on this debt. They are usually owned by governments, though owners can also include the private sector, development partners, NGOs, etc.

SPFMs must be structured in such a way that they are highly creditworthy. This can be accomplished by utilising multiple levels of credit enhancements, which would be prohibitively expensive if applied to individual projects. Reserve accounts, cash flow overcollateralization, intergovernmental financial transfers and intercepts, partial credit guarantees, first loss facilities, and subsidies are among the enhancements.

According to the Global Fund for Cities Development (hereinafter referred to as “FMDV“), SPFMs “have been successfully used since 1898 in securing finance for both large and small local projects, securing over $1 trillion in finance in the US and Europe, and over $2.6 billion in developing countries”. In Europe, Nordic countries have applied the SPFM model to meet subnational financing needs.

Examples of Nordic PFAs include Kommuninvest (Sweden), an organisation jointly owned by local government authorities and that acts as an aggregator and conduit issuer to Swedish local governments and uses proceeds from its green bond capital-raising for lending to Swedish municipalities in the form of green loans, which members then use to invest in environmental projects; Kommunalbanken, Norway’s largest lender to local governments, which has an active green bond and green loan program; KommuneKredit (Denmark), which serves as a municipal credit aggregation agency and is similar in function to Kommuninvest and Kommunalbanken; and MuniFin (Finland), which is the main financial services provider to Finland’s local governments and offers a discount margin to its borrowers to provide an incentive to propose projects depending on how ‘green’ the project is in terms of its environmental sustainability.

In addition, the Green Asset Wallet initiative has begun to shape an important blockchain use case in monitoring green bond proceeds. The Stockholm Green Digital Finance project, which is supported by Norway’s Center for International Climate Research (hereinafter referred to as “CICERO”), applies the concept of sustainability attribution to green financial investments. According to CICERO, the project is intended to provide green investors with the technology they need to better meet the goals of the Paris Climate Agreement and the SDGs. The wallet is built on open-source technology designed specifically for capital market participants.

The technology will provide a platform for green investment validation as well as impact reporting. The Green Assets Wallet will aid in the effective channelling of private institutional capital to green projects around the world, with a focus on green emerging market investments.

Despite the rapid growth of the green bond market, investors remain concerned about transparency. The continued expansion of the green bond market and, more broadly, green finance will be contingent on transparency in the use of proceeds. To raise capital for the Paris Agreement and the SDGs, developing countries in Asia and other regions may expand the use of green bonds, adopt financing models such as SPFMs, and further develop and implement innovative fintech and blockchain approaches to enhance and promote the growth and transparency of their growing green bond markets. Adoption of novel approaches, such as the Green Asset Wallet initiative described above, could provide additional avenues for increasing investor trust in the underlying quality of green financial instruments.


Climate change has been recognised as one of the most critical challenges facing global society and the economy in the 21st century. The financial sector can play a pivotal role in mobilising resources and allocating them to green activities and projects. Green finance is also progressively gaining traction in India. Deposits constitute a major source for the mobilisation of funds by the Regulated Entities It is seen that some regulated entities are already offering green deposits for financing green activities and projects. Taking this forward and with a view to fostering and developing the green finance ecosystem in the country, the Reserve Bank of India has decided to put in place the framework for acceptance of Green Deposits for the Regulated Entities through their circular dated April 11, 2023.


The purpose and rationale given in the framework are primarily to encourage Regulated Entities to offer green deposits to customers, protect the interests of the depositors, aid customers in achieving their sustainability agenda, address greenwashing concerns, and help augment the flow of credit to green activities and projects.

They have stated that the provisions of the framework would be applicable to scheduled commercial banks, including Small Finance Banks (excluding Regional Rural Banks, Local Area Banks, and Payments Banks) and all deposit-taking Non-Banking Financial Companies registered with the Reserve Bank of India, including Housing Finance Companies registered under the National Housing Bank Act, 1987.

They have defined various terminologies, including green activities/projects, green deposits, green finance, and greenwashing. They have also provisioned regarding reporting and disclosures by the Regulated Entities by stating that they shall place a review report before their respective Board of Directors by June of each year, covering the following details:

(a) amount raised under “green deposits” during the previous financial year;

(b) list of green activities/projects to which proceeds have been allocated, along with a brief description of the projects;

(c) the amounts allocated to the eligible green activities and projects

(d) a copy of the Third-Party Verification/Assurance Report and the Impact Assessment Report.

One of the most important provisions under this framework is provided under Paragraph 7, which is ‘Use of Proceeds’. They have adopted the list of eligible green projects. They have provisioned that the allocation of proceeds raised from green deposits shall be towards the following list of green activities and projects that encourage energy efficiency in resource utilisation, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation, and value and improve natural ecosystems and biodiversity, namely:

1. Renewable Energy

  • Solar, wind, biomass, and hydropower energy projects that integrate energy generation and storage
  • Incentivizing the adoption of renewable energy

2. Energy Efficiency

  • Design and construction of energy-efficient and energy-saving systems and installations in buildings and properties
  • Supporting lighting improvements (e.g., replacement with LEDs)
  • supporting the construction of new low-carbon buildings as well as energy-efficiency retrofits to existing buildings.
  • Projects to reduce electricity grid losses

3. Clean Transportation

  • Projects promoting the electrification of transportation.
  • Adoption of clean fuels like electric vehicles, including building charging infrastructure.

4. Climate Change Adaptation

  • Projects aimed at making infrastructure more resilient to the impacts of climate change.

5. Sustainable Water and Waste Management

  • Promoting water-efficient irrigation systems
  • Installation or upgrade of wastewater infrastructure, including transport, treatment, and disposal systems
  • Water resource conservation
  • Flood defence systems

6. Pollution Prevention and Control

  • Projects targeting reduction of air emissions, greenhouse gas control, soil remediation, waste management, waste prevention, waste recycling, waste reduction and energy/emission-efficient waste-to-energy.

7. Green Buildings

  • Projects related to buildings that meet regional, national, or internationally recognized standards or certifications for environmental performance.

8. Sustainable Management of Living Natural Resources and Land Use

  • Environmentally sustainable management of agriculture, animal husbandry, fishery and aquaculture.
  • Sustainable forestry management including afforestation/reforestation.
  • Support to certified organic farming.
  • Research on living resources and biodiversity protection.

9. Terrestrial and Aquatic Biodiversity Conservation

  • Projects relating to coastal and marine environments.
  • Projects related to biodiversity preservation, including conservation of endangered species, habitats, and ecosystems.

10. The projects which are excluded from the above are:

  • Projects involving new or existing extraction, production, and distribution of fossil fuels, including improvements and upgrades; or where the core energy source is fossil-fuel based.
  • Nuclear power generation.
  • Direct waste incineration.
  • Alcohol, weapons, tobacco, gaming, or palm oil industries.
  • Renewable energy projects generating energy from biomass using feedstock originating from protected areas.
  • Landfill projects.
  • Hydropower plants larger than 25 MW.

Hence India is taking a positive step towards green financing, and it is quintessentially being assisted by the Fintech sector to do so. We can take positive inputs from European countries with regards to the same, as they have started heavily investing in green financing and are being assisted primarily by fintech agencies there to achieve their goals.


Policymakers in India should note that for financing climate change and sustainable development, they should pay attention to developments in fintech. The sector is rapidly evolving with a proliferation of different initiatives that have either direct or indirect relevance to green finance and sustainable development. Many initiatives are at an early stage and, if supported by appropriate policy and regulation, have the potential to develop into business models that can both reduce the cost and improve the prospects of achieving the objectives of the Paris Agreement and the SDGs, particularly with respect to areas including supply chain transparency, identity and financial inclusion, property rights, expansion of renewable energy, decentralisation of electrical power systems, carbon credit trading, and improved access to climate finance.

Policymakers can be inspired by a wide range of current and ongoing initiatives led by committed, dynamic fintech entrepreneurs who are focused on developing and implementing their specific technologies with the goal of an application or set of applications that often have a material direct or indirect bearing on our ability to meet the SDGs and the Paris Agreement. However, the deeper opportunity set, rather than the agreements themselves, is frequently at the forefront of people’s thinking and business models.

– Team AMLEGALS assisted by Ms. Maneesha S (Intern)

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