TERI's Five-Pillar Framework to Unlock Climate Finance in India

India's Climate Finance Gap Demands Structural Reform

India's transition to a low-carbon economy hinges on mobilising billions in commercial capital toward climate-aligned projects. Yet traditional bankability frameworks fail to account for the unique risks and long-term horizons of renewable energy, sustainable agriculture, and green infrastructure investments. The Energy and Resources Institute (TERI) has now proposed a comprehensive five-pillar framework designed to recalibrate how India's financial sector assesses and funds climate action initiatives.

This framework addresses a critical bottleneck: many promising climate projects struggle to attract commercial financing not because they lack environmental merit, but because they don't fit conventional risk assessment models. By redefining what constitutes a bankable project in the climate context, TERI argues, India can unlock substantial private capital currently sitting on the sidelines.

Understanding the Five Pillars

TERI's framework rests on five interconnected pillars that collectively reshape how financial institutions evaluate climate projects:

1. Policy and Regulatory Clarity

The first pillar establishes the need for transparent, stable policy frameworks that reduce investor uncertainty. Clear renewable energy targets, carbon pricing mechanisms, and environmental standards provide the foundation upon which commercial lenders can confidently deploy capital. Without regulatory certainty, even well-designed projects face higher perceived risk and costlier financing.

2. De-risking and Credit Enhancement

The second pillar focuses on mechanisms that lower the effective risk profile of climate projects. This includes partial credit guarantees, subordinated debt structures, blended finance instruments, and government-backed risk mitigation tools. By absorbing early-stage or tail risks, de-risking instruments make projects attractive to conservative institutional investors like banks and insurance companies.

3. Standardised Project Development and Due Diligence

Consistency in project preparation, technical standards, and environmental/social safeguards reduces friction in the lending process. When climate projects follow standardised templates and undergo independent verification, lenders can process approvals faster and with greater confidence. This pillar emphasises the role of technical assistance and certification in building lender confidence.

4. Concessional Capital and Blended Finance

The fourth pillar leverages concessional funding—grants, low-interest loans, and patient capital from development finance institutions—to anchor blended finance structures. By accepting sub-market returns on a tranche of capital, development actors create room for commercial investors to achieve acceptable returns. This mechanism is essential for channelling private money into climate projects with social benefits but limited revenue-generation capacity.

5. Institutional Capacity and Market Infrastructure

The final pillar strengthens the human and technical infrastructure that enables finance to flow. This includes training lenders in climate risk assessment, building capacity within financial regulators, developing market platforms for climate investment aggregation, and fostering knowledge-sharing networks among market participants.

Why This Framework Matters for India

India faces mounting pressure to accelerate decarbonisation while funding development priorities across infrastructure, agriculture, and energy. The country has committed to achieving net-zero emissions by 2070 and net-zero greenhouse gas emissions across the energy sector by 2050. Simultaneously, India must finance massive investments in renewable energy capacity, grid modernisation, water security, and climate-resilient agriculture.

Traditional project finance models—designed for toll roads, ports, and hydroelectric dams—don't translate directly to distributed solar, small-scale biogas systems, or agricultural water management projects. Many climate investments operate at smaller scales, carry longer payback periods, and generate indirect benefits not fully captured in project cash flows. TERI's framework acknowledges these realities and proposes solutions tailored to India's operating context.

The framework also recognises India's institutional landscape: a large population of small and medium enterprises, cooperative banks with limited technical capacity, and a diverse range of climate opportunities across states with varying levels of financial maturity. No single financing instrument or institution can address this diversity. Instead, the five pillars work together to create an ecosystem where multiple actors—government, development finance, commercial banks, and private investors—can collaborate effectively.

Practical Implementation Pathways

TERI's framework is not merely aspirational. It proposes concrete steps across each pillar. At the policy level, this includes harmonising renewable energy regulations across states, establishing standardised environmental clearance timelines, and creating transparent carbon pricing. For de-risking, it identifies specific instruments—partial risk guarantees from institutions like the National Bank for Agriculture and Rural Development (NABARD) and the India Infrastructure Finance Company Limited (IIFCL)—that can be deployed immediately.

Standardisation efforts can leverage existing platforms and build on international best practices. The Green Credit Scheme launched under the Climate Bonds Initiative and India's taxonomy for green bonds provide starting points. Blended finance structures require coordination among bilateral donors, multilateral development banks, and India's own green financing vehicles like the National Green Tribunal and state-level green banks.

Capacity building demands investment in training programmes, regulatory guidance, and knowledge platforms. Institutions like TERI itself, alongside financial regulators and industry associations, can drive this agenda through workshops, certification programmes, and policy engagement.

Bridging the Commercial Finance Gap

The stakes are substantial. India's climate action pipeline—projects in renewable energy, energy efficiency, water, waste, and sustainable transport—runs into hundreds of billions of rupees. Public budgets, while growing, cannot cover the full requirement. Concessional development finance is limited. Commercial capital must play the lead role, and commercial investors will only deploy at scale if they perceive projects as bankable and returns as competitive.

TERI's five-pillar framework provides a roadmap for making that happen. By addressing policy uncertainty, managing risk through targeted instruments, standardising project preparation, blending capital sources strategically, and building institutional capacity, India can unlock the commercial finance that climate action demands. The framework is neither radical nor untested—similar approaches have succeeded in other emerging markets. What's needed now is coordinated implementation across government, financial regulators, development institutions, and the commercial banking sector.