10 Essential Things to Know About Raising Sustainable Finance
EY outlines key considerations for companies and investors navigating the growing sustainable finance landscape in India. Here's what you need to know.
Understanding Sustainable Finance in Today's Market
Sustainable finance has moved from the margins of corporate strategy to the centre of capital allocation decisions. As environmental, social, and governance (ESG) concerns reshape how investors evaluate companies, understanding the mechanics of raising sustainable finance has become essential for Indian businesses seeking capital. EY's framework offers practical guidance for organizations at any stage of their sustainable finance journey.
The Ten Critical Pillars of Sustainable Finance
1. Define Your Sustainability Strategy First
Before approaching investors or lenders, organizations must articulate a clear sustainability strategy. This isn't about making vague environmental commitments—it requires specific, measurable targets aligned with your business model. Your strategy should identify material ESG issues that genuinely impact your sector and your company's risk profile.
2. Align With International Standards and Frameworks
Global investors increasingly rely on internationally recognized frameworks such as the Science Based Targets Initiative (SBTi), the Task Force on Climate-related Financial Disclosures (TCFD), and the Sustainable Development Goals (SDGs). Familiarizing yourself with these standards ensures your sustainability narrative resonates with institutional capital sources globally and locally.
3. Understand Your Investor Base
Different investors have different sustainability priorities. Impact investors focus on measurable social outcomes, while ESG-conscious institutional investors emphasize risk mitigation and long-term value creation. Identifying which investor segments align with your sustainability commitments helps you craft targeted messaging and select appropriate financing channels.
4. Know the Sustainable Finance Products Available
The sustainable finance ecosystem includes green bonds, sustainability-linked loans, green mortgages, and ESG-linked derivatives. Each product has distinct eligibility criteria, reporting requirements, and cost structures. Understanding these options allows you to choose instruments that match your funding needs and sustainability ambitions.
5. Prepare Robust Impact Measurement Frameworks
Investors want proof, not promises. Develop systems to measure, monitor, and report your sustainability impact rigorously. This includes quantifying greenhouse gas emissions reductions, water savings, social outcomes, or other key performance indicators tied to your sustainability goals. Third-party verification strengthens credibility.
6. Master ESG Disclosure and Reporting
Transparent communication about your ESG performance is non-negotiable. This goes beyond annual reports to include integrated reporting, sustainability reports aligned with standards like GRI or SASB, and regular updates on progress toward targets. Poor disclosure practices signal mismanagement to sophisticated investors.
7. Evaluate the True Cost of Capital
While sustainable finance instruments may carry slightly different pricing than conventional financing, the total cost depends on your creditworthiness, market conditions, and execution capability. Compare all-in costs carefully—sometimes the pricing benefit is modest, but the reputational and stakeholder management advantages are substantial.
8. Build Internal Capabilities and Governance
Raising sustainable finance isn't just a finance function—it requires cross-functional commitment. Your board, senior management, and operational teams must understand sustainability targets and be accountable for achieving them. Governance structures should clearly delineate ESG responsibilities.
9. Plan for Long-Term Verification and Compliance
Sustainable finance instruments typically require ongoing reporting and verification. Budget for third-party audits, sustainability certifications, or use-of-proceeds attestations throughout the loan or bond life. Non-compliance or missed targets can damage investor relationships and future fundraising prospects.
10. Anticipate Regulatory Evolution
India's regulatory environment around sustainability disclosure and ESG is evolving rapidly. The SEBI's BRSR (Business Responsibility and Sustainability Reporting) requirements, RBI's climate risk guidelines, and upcoming ESG regulations will reshape capital market expectations. Staying ahead of regulatory change positions you as a responsible borrower or issuer.
Why This Matters for Indian Businesses
India is attracting significant multilateral and institutional capital focused on sustainable development. Global climate commitments, renewable energy expansion, and social inclusion programs create financing opportunities for well-positioned Indian companies. However, access to these capital pools requires demonstrating genuine commitment to sustainability, not superficial greenwashing.
The cost of capital for sustainable enterprises is gradually declining in India as the ESG investor base grows. Banks, development finance institutions, and international investors are increasingly willing to offer better terms to companies with credible sustainability credentials.
Next Steps for Your Organization
Start by conducting a materiality assessment to identify which sustainability issues matter most to your business and stakeholders. Then evaluate your current ESG performance against relevant standards. If gaps exist, develop a roadmap to improve before approaching the market. Finally, engage advisors with experience in sustainable finance structuring to navigate the technical requirements and maximize the benefits of your sustainability commitments.
The shift toward sustainable finance is accelerating globally and in India. Companies that move proactively to understand and leverage these mechanisms will enjoy competitive advantages in capital availability, cost, and investor relations for years to come.
Frequently asked questions
What is sustainable finance and how is it different from conventional financing?
Sustainable finance refers to financial products and lending structures explicitly linked to environmental, social, or governance outcomes. Unlike conventional financing, sustainable finance instruments require clear sustainability targets, third-party verification, and ongoing impact reporting. They often attract investors specifically seeking ESG exposure and may offer competitive pricing to credible issuers.
What are green bonds and who can issue them?
Green bonds are debt securities whose proceeds are dedicated exclusively to financing environmental projects such as renewable energy, energy efficiency, or sustainable water management. Any organization—government, corporation, or development institution—with a clear sustainability project pipeline and credible governance can issue green bonds. In India, RBI and SEBI guidelines provide the framework.
How do I measure and report ESG impact credibly?
Develop quantifiable metrics aligned with international frameworks like GRI, SASB, or TCFD. Track data systematically throughout the year and obtain third-party assurance through external auditors or certification bodies. Report regularly and honestly, even when results fall short of targets. Transparency about challenges builds investor trust more than perfection.
Is sustainable finance more expensive than conventional financing?
Not necessarily. While some sustainable finance instruments have slightly different pricing, the all-in cost depends on your credit profile, market conditions, and execution track record. Many investors accept lower returns for ESG exposure, so well-managed sustainability leaders often access capital at competitive or superior rates compared to peers.
What regulatory changes should Indian companies expect in sustainable finance?
SEBI has strengthened BRSR reporting requirements for listed companies, the RBI has issued climate risk guidelines for banks, and the Ministry of Finance continues refining green finance regulations. Expect increasing disclosure mandates, tighter definitions of what qualifies as 'green,' and potential carbon pricing mechanisms. Staying informed and compliant is essential.