India’s economy is highly dependent on carbon-intensive sectors. However, there is increasing national recognition of the need not only to transition away from fossil fuels, but also to do so in a socially just way. Suranjali Tandon writes that a whole-system approach is needed to translate this growing momentum into practical action by business and finance.

It is becoming clear that equity is crucial for India’s transition to a green economy and the human element cannot be ignored. The country’s economic priorities are increasingly aligned with principles of just transition, a framework to ensure that workers are not left behind as businesses and organisations move towards climate-resilient approaches.

A bright spot in the global economy, India holds the key to a successful global net-zero transition. The country is committed to reaching net zero by 2070, but its journey is not without challenges, as the contribution of carbon-intensive sectors to the economy cannot be ignored. In 2021/22, mining, metal fabrication, electricity and gas, construction and transport services contributed 21.7 per cent to gross value added at basic prices. The sale of fossil fuels contributes 17.1 per cent of the national and subnational governments’ tax revenues.

India’s resource endowment is concentrated, with states such as Jharkhand, Odisha and Chhattisgarh possessing most of the country’s coal resources. Yet, renewable capacity is developing elsewhere in the country, which highlights the need for equity between internal regions as well as internationally.

For example, India’s Long Term Low Emission Development Strategy focusses on workforce reskilling and redeployment. Finance Minister Nirmala Sitharaman has underscored in her 2023 and 2024 budget speeches that various schemes undertaken by the government reflect its ‘firm resolve to leave no one behind’. The government’s think tank Niti Aayog has also stressed that inclusive delivery necessitates strategic thinking about finance.

A whole-system approach is needed to translate this growing momentum into practical action by business and finance. India’s financial regulators must be ready to use existing mechanisms as tools for change, including the Securities and Exchange Board (SEBI) with its Business Responsibility and Sustainability Report (BRSR) provisions; the Ministry of Corporate Affairs with corporate social responsibility spending requirements for business; and the Reserve Bank, with longstanding priority sector lending (PSL) requirements.

Sustainable finance has gained significant traction over the past three years. The Securities and Exchange Board has expanded its bonds framework, which has moved beyond green. The sovereign green bond issuance of INR 160 billion in 2023 marked a significant milestone. Its framework incorporated reference to social co-benefits that include employment generation and support for micro, small and medium enterprises, pointing to possible further linkage with the just transition in future.

India’s G20 presidency in 2023 was another catalyst for mainstreaming the just transition and the financing of sustainable development goals. The Delhi Leaders’ declaration made clear that it would “pursue development models that implement sustainable, inclusive and just transitions globally”. The declaration underscored the need for maximising the impact of concessional finance, while encouraging the use of blended finance. Brazil, the 2024 president of the G20, has picked up the baton from India and one of the priorities for the sustainable finance working group this year is to promote “credible, robust and just transition plans”.

There is growing national recognition of the need to raise resources to mitigate the adverse social implications of the shift away from fossil fuels. The first just transition task force in the coal-dependent state of Jharkhand is working on seven thematic areas: livelihood, energy transition, coal transition, electric mobility, industry decarbonisation, climate finance and capacity building. Early thinking on a way forward suggests that the sectors of the future include biofuel crops, carbon sequestration and forestry. Financial resources for technology and capacity building can be raised through collaboration between the public and private sectors.

There is another glimmer of hope as some corporates are beginning to focus on the social and employment impacts of the transition. Many of the most carbon-intensive firms are in the public sector (Coal India, energy conglomerate NTPC, Indian Oil Corporation, NGC Energy, Hindustan Petroleum Corporation) and are among the top corporate social responsibility contributors, which allows them to choose direct strategic targets. Among spending focus areas are health, sanitation, environment and sustainability, education and livelihoods.

Beyond corporate social responsibility interventions, these companies’ transition and diversification plans and investments can accommodate social impact through active and early engagement by stakeholders. For example, NTPC and Coal India have announced diversification plans.

Leading businesses are also looking for deeper business models around inclusion in the country’s energy transformation. Institutional investors have been incorporating the just transition into their net zero expectations of business, for example through the Climate Action 100+ initiative, in which seven Indian companies take part. Domestic as well as international shareholders are signalling that just transition is integral to risk reduction and opportunity development.

There are early examples of innovative financing such as the social impact bond used for skilling. The successful launch of the National Skill Development Council’s skill impact bond is a template for replication as it brings together public finance and philanthropies.

This shows the fast evolution of sustainable finance and just transition in India. The first year of the revised and more robust Business Responsibility and Sustainability Report is now complete, the central bank has provided a green deposit framework and the International Financial Services Centre is now working towards the promotion of transition finance. As India moves towards a green, net zero economy, the social implications of the transformation cannot be ignored. The interconnections between the ‘E’ and the ‘S’ in ESG (environmental, social and governance) must be well understood and the social costs thus far ignored in corporate profit and loss finally must be factored in.

The independent non-profit organisation International Forum for Environment, Sustainability & Technology (iFOREST) has said that “India needs an estimated $900 billion for a just energy transition vis-à-vis coal mines and thermal power plants over the next 30 years.” Many different sources of finance, from concessional to commercial, need to be mobilised to meet this figure and it is vital that these sources are carefully mapped on to activities aligned with just transition.

• This blog post is part of a joint series with LSE’s Just Transition Finance Lab. 
• The post represents the views of the author, not the position of LSE Business Review or the London School of Economics and Political Science.
• Featured image provided by Shutterstock.
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