Can Green NBFCs Take Climate Finance to the Last Mile?

Texas-based private equity firm TPG is unveiling a green financing platform in India, it's first in the country in the form of a climate-focused NBFC with $ 1 billion as an initial equity pool.  The initiative is in line with India’s ambitious climate goal of becoming net-zero by 2070, which requires an estimated $1 trillion.

Although India receives climate finance from a variety of sources including the Union Budget, international organisations (like the International Finance Corporation and the Asian Development Bank), bilateral donors and private investors, the funding gap remains daunting. For example, although the World Bank group advanced $31 billion in climate finance to India in FY 2024, it still fell woefully short of its requirements. 

Studies like the 2021 CEEW Report reveal that even conventional sources of capital can only partially meet India's humongous finance needs. India is staring at a $ 1.4 trillion deficit between 2020 and 2070 to meet its requirement, a gap that cannot be closed without significant external grants.

Why is TPG Interested? 

TPG's entrance into green finance for developing countries like India fits in with its broader goal of addressing climate challenges by opening new investment opportunities and collaborations. TPG has already deployed over $ 4 billion in climate solutions across 20 Global South countries, headlined by a recent partnership with the private climate investment firm, ALTERRA through the Global South Initiative (GSI). The alliance has secured $1.25 billion in capital commitments. 

In 2021 the Texas firm established the TPG Rise Capital Fund focusing on sectors like clean energy, decarbonised transportation, greening industrials and sustainable agriculture. Through its existing investments the company has demonstrated impact, for instance, by conserving six million acres of wilderness in Africa and delivering 300 MWs of renewable energy in Chile.

In India it has supported the electric vehicle initiative of Tata motors. TPG's established presence and expertise positions it well to navigate green investments, including through existing investments in NBFCs like 5 Star Business Finance and Poonawala Housing Finance.

The Role of Green NBFCs in Climate Finance 

NBFCs play a critical role in addressing India’s climate finance needs by providing accessible funding, often faster than traditional banks. Though regulated by the Reserve Bank of India, they are more flexible and can bridge funding gaps, particularly for smaller or underserved businesses. Entities like Mufin Green Finance and Vivriti Capital have emerged to finance sustainable projects such as green buildings, rooftop solar and electric vehicles, addressing the last-mile gap in climate funding.

Cautious Outlook

While TPG's goal of raising 10 billion dollars across the Global South initiative is promising, what you see is often not what you get. A Reuter analysis earlier this year pointed out that climate finance from wealthy nations often comes wrapped in conditionalities, which end up primarily benefiting the donor nations. Monitoring the long-term impact and transparency of these investments will be crucial in assessing the real value they bring to developing nations like India.