India must urgently establish a Just Transition (JT) financing ecosystem that merges its climate ambitions with socio-economic inclusion, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).
The report calls for a coordinated, multi-stakeholder approach involving regulators, financial institutions, government ministries, corporates, and civil society. This alignment is critical to harmonize policies, direct capital flows, and ensure the effective implementation of JT strategies. IEEFA outlines a phased approach — beginning with short-term pilot projects and targeted incentives, followed by medium-term regulatory scaling, and culminating in long-term structural reforms.
Key financial regulators like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have a pivotal role in guiding financial flows toward sustainable objectives, the report notes. At the same time, policy institutions such as the Ministry of Finance (MoF), the Ministry of Environment, Forest and Climate Change (MoEFCC), and NITI Aayog must shape strategic and fiscal frameworks that support a just and inclusive transition.
“Capital can be mobilised through public and private sources, guided by ministries via blended finance and incentives. Corporates and their supply chains are key to implementation, especially in high-emission sectors,” said Gaurav Upadhyay, Energy Finance Specialist and co-author of the report.
The report recommends adapting financial instruments — including Priority Sector Lending (PSL), Green Deposits, and Sovereign Green Bonds — to incorporate JT-aligned eligibility and impact criteria. While SEBI’s Business Responsibility and Sustainability Reporting (BRSR) and ESG-linked products have made progress, JT-specific indicators remain absent.
“Expanding BRSR to include social risk and JT metrics could help channel capital toward companies with credible transition plans,” said Labanya Prakash Jena, sustainable finance consultant and co-author.
Sangeeth Raja Selvaraju, Policy Fellow at the Grantham Research Institute at LSE and a contributing author, pointed to the MoF’s crucial role. “The MoF can embed JT into India’s fiscal framework by aligning green taxonomies, allocating resources, and creating a dedicated fund for affected regions and communities,” he said.
The MoEFCC can further support JT by aligning it with climate and environmental policies and leveraging programmes like the Green Skill Development Programme and the Green Credit Programme. It can also tap into international sources such as the Green Climate Fund to promote community resilience and nature-based solutions in fossil fuel-dependent regions.
While some corporates are beginning to integrate JT into their strategies, challenges remain, including high transition costs, limited financing access for MSMEs, and supply chain hurdles. The private sector has expressed the need for stronger policy guidance, regulatory support, and incentives for green innovation and social inclusion.
“The government must also look to boost state-level engagement, especially in coal-dependent regions, as many states lack the technical capacity to design, finance, or implement JT-aligned programmes,” Jena added.
Ultimately, sustained coordination among ministries, regulators, state governments, the private sector, and civil society will be essential for India’s successful energy transition.
“Investing in capacity building, financial innovation, and inclusive planning will ensure that India’s energy transition not only mitigates climate risk but also empowers its people and regions for a more equitable future,” Upadhyay concluded.