Green Financing and Its Role in Promoting Sustainable Startups in India

Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-9(VIII)| September 2025 39 Green Financing and Its Role in Promoting Sustainable Startups in India Patel Shaazmeen Zaheer Ahmed¹, Dr. Aparna Saraf² ¹Assistant Professor, Department of Commerce & Management Science, Maulana Azad College of Arts, Science & Commerce, Chhatrapati Sambhajinagar ²Professor & Head, Department of Commerce & Management Science, Maulana Azad College of Arts, Science & Commerce, Chhatrapati Sambhajinagar Manuscript ID: JRD -2025-170909 ISSN: 2230-9578 Volume 17 Issue 9 (VIII) Pp. 39-42 Sept. 2025 Submitted:15 Aug. 2025 Revised: 25 Aug. 2025 Accepted: 10 Sept. 2025 Published: 30 Sept. 2025 Abstract: Green financing plays a crucial role in promoting sustainable growth in India by providing financial support to environmentally responsible businesses and startups focused on renewable energy, clean technology, waste recycling, and sustainable agriculture. It not only helps these ventures overcome early financial challenges but also aligns with India’s efforts to achieve its Sustainable Development Goals (SDGs) and Net-Zero emissions target by 2070. With an estimated investment need of over $10 trillion, structured green finance mechanisms such as the National Clean Energy and Environment Fund (NCEEF) and Priority Sector Lending (PSL) are vital for channeling both public and private capital. By de-risking innovative ventures and encouraging responsible investments, green financing serves as a foundation for India’s transition toward a cleaner, greener, and more resilient economy. Keywords: Green Finance, Sustainable Development, Sustainable Startups, Sustainable Innovation, Entrepreneurship, Green economy. Introduction In recent years, sustainable development has become a global priority, and India’s commitment to achieving the Sustainable Development Goals (SDGs) by 2030 and NetZero emissions by 2070 highlights the growing need for environmentally responsible business practices. Green financing plays a crucial role in this direction by supporting startups and businesses focused on renewable energy, waste reduction, and eco-friendly innovation. It provides financial backing to sustainable ventures that often face funding challenges, thereby linking economic growth with environmental protection. According to the Council on Energy, Environment and Water – Centre for Energy Finance (CEEWCEF), India will require over USD 10 trillion in cumulative investment by 2070 to meet its Net-Zero target (CEEW, 2021; The Tribune, 2023). Hence, green financing serves as a key mechanism to mobilize the necessary funds and drive India’s long-term sustainable economic transformation. 1. Defining Green Financing Green financing refers to financial instruments and services that intentionally support sustainable development by promoting better environmental outcomes, specifically through climate change mitigation and adaptation. Its scope is broad, covering investments in renewable energy, energy efficiency, water sanitation, industrial pollution control, and biodiversity protection. A key objective is to internalize environmental risks and ensure greater accountability in investment decisions, directing capital towards projects that yield both decent returns and environmental benefits. The Global Financing Shortfall The international financial architecture has failed to meet its commitment. Quick Response Code: Website: https://jrdrvb.org/ DOI: Creative Commons (CC BY-NC-SA 4.0) This is an open access journal, and articles are distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Public License, which allows others to remix, tweak, and build upon the work noncommercially, as long as appropriate credit is given and the new creations ae licensed under the idential terms. Address for correspondence: Patel Shaazmeen Zaheer Ahmed, Assistant Professor, Department of Commerce & Management Science, Maulana Azad College of Arts, Science & Commerce, Chhatrapati Sambhajinagar. How to cite this article: Patel Shaazmeen Zaheer Ahmed, Aparna Saraf (2025). Green Financing and Its Role in Promoting Sustainable Startups in India. Journal of Research & Deveopment, 17(9), 39-42 Original Article Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-9(VIII)| September 2025 40 Through the 2010 Cancun Agreements, developed countries promised to mobilize $100 billion per year by 2020 for developing nations. The Glasgow Climate Pact (COP26) formally acknowledged that this goal has not yet been met, placing a significant strain on countries like India. To facilitate flows, the UNFCCC established critical mechanisms, including the Green Climate Fund (GCF) and the Adaptation Fund (under the Kyoto Protocol), alongside the Global Environment Fund (GEF). Objectives of the Study 1. To understand the meaning and importance of green financing. 2. To study how green finance supports the growth of sustainable startups in India. 3. To identify challenges faced by startups in getting green finance. 4. To suggest measures for promoting green finance in India. Review of Literature Many studies have discussed the growing importance of green finance in achieving sustainable development. According to reports by the United Nations and the OECD, green finance plays a key role in meeting global climate goals. In India, the Reserve Bank of India (RBI) and the Ministry of Finance have also started encouraging banks to provide loans for green projects. The Climate Policy Initiative (2024) noted that India’s green debt market has grown to more than USD 55 billion, showing a rising interest in eco-friendly investment. Research by Bhatnagar (2022) highlighted that green finance helps small entrepreneurs who want to develop eco-friendly technologies but lack resources. Another study by Kaur and Singh (2023) found that digital financial tools and green bonds make it easier for sustainable startups to raise funds. Similar experiences in countries like Germany and South Korea show that when governments give incentives and tax benefits, more startups choose to work on green innovations. Research Methodology This study adopts a descriptive and analytical research approach, using secondary data from government reports, research papers, and official publications to examine the role of green financing in promoting sustainable startups in India India's Domestic Response and Financial Mechanisms India's climate action strategy has been significantly supported by domestic financial mobilization. Between 2014 and 2019, India generated approximately USD 1.374 billion through domestic sources to fund climate initiatives. In contrast, grants received from international climate funds like the Green Climate Fund (GCF) and the Global Environment Facility (GEF) during the same period amounted to about USD 165.25 million. This disparity underscores India's substantial commitment to financing its climate goals through internal resources. Institutional Framework and Funds National Clean Energy and Environment Fund (NCEEF): This fund is financed by the coal cess (Clean Environment Cess) levied on domestic and imported coal, aligning with the "polluter pays" principle. Its mandate is to fund renewable energy projects, research, and innovation in clean technologies. Indian Renewable Energy Development Agency (IREDA): This specialized agency provides concessional loans and financial support tailored for renewable energy projects. Mandatory and Market Instruments for Startups Instrument Regulator/Mandate Specific Role in Green Financing Priority Sector Lending (PSL) Reserve Bank of India (RBI) Mandates commercial banks to allocate a specific portion of their lending to priority areas. Renewable energy loans up to ₹30 crore for corporate borrowers and ₹10lakh for individual households are classified under PSL, ensuring directed credit flow. GSS Bonds Securities and Exchange Board of India (SEBI) Green, Social, and Sustainability bonds are market instruments used to raise capital for a range of green and sustainable projects. Green Deposits RBI Guidelines A mechanism where bank deposits Are specifically earmarked for financing designated green projects, ensuring transparency in fund utilization. for financing designated green projects, Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-9(VIII)| September 2025 41 Carbon Markets and Credits Government Initiatives Tools for pricing and trading carbon emissions, providing a financial incentive for companies and startups to reduce their environmental footprint. 3 Key Policy Targets These financing mechanisms are critical to achieving India's quantified Nationally Determined Contribution (NDC) targets by 2030, which include: Reducing the emissions intensity of GDP by33-35 from 2005 levels.Achieving about 40% cumulative electric power installed capacity from non-fossil fuel-based resources.creating an additional 2.5-3 billion tonnesCO_2 equivalent carbon sink through forest and tree cover. Promoting Startups: Bridging the Early-Stage Financing Gap The most critical function of green finance is to overcome the pre-commercialization funding hurdle faced by innovative startups—a phase characterized by high technology risk and long gestation periods. 1. Major Challenges to Startup Funding 1. Valuation and Risk: Traditional finance models struggle to account for the long-term, public good nature of climate-tech, leading to a perception of high risk among conventional domestic investors. 2. Lack of Standardization: The absence of a mandatory, uniform Green Taxonomy makes impact verification difficult and increases the risk of "greenwashing," discouraging investment in unproven firms. 3. Cost of Capital: High borrowing costs and the lack of dedicated tax benefits for investors in green projects make them financially unviable compared to conventional alternatives. 2 . Case Studies: Green Finance in Action The following examples illustrate how specialized green finance instruments actively de-risk and promote sustainable startups: A. PSL for Decentralized Energy Solutions (Directed Credit) Mechanism: Priority Sector Lending (PSL) via Regional Rural/Small Finance Banks. Impact: For startups implementing decentralized micro-solar grids in remote areas, conventional loans are often inaccessible due to geographic and project size risks. The PSL mandate acts as a risk tolerance lever, compelling banks to extend subsidized credit. This directed flow ensures these enterprises, which directly support the 40 nonfossil fuel target, can secure asset finance and demonstrate commercial feasibility in underserved markets. B. Blended Finance for Climate-Smart Agriculture (Risk Mitigation) Mechanism: Blended Finance (Concessional Debt from a Development Finance Institution (DFI)+ Commercial Equity). Impact: A startup providing climate-smart agricultural advisory and organic inputs requires large capital for scaleup (an adaptation solution). Here, the DFI provides a small, concessional loan that acts as first-loss capital, absorbing the highest initial risk. This action de-risks the project for commercial investors, successfully crowding-in a much larger tranche of commercial equity from private green funds. This structure is indispensable for adaptation solutions that lack short-term, high returns. C. NCEEF Grants for Deep-Tech Recycling (Technology De-risking) Mechanism: Non-dilutive Grant Funding (NCEEF-focused schemes). Impact: A startup specializing in efficient lithium-ion battery recycling requires extensive R&D and pilot testing. A government R&D grant (funded through NCEEF) covers the cost of the initial pilot plant. This non-dilutive capital absorbs the high-risk development phase and validates the technology, transforming the startup into a viable candidate for later-stage, commercial equity investment. Policy Recommendations To maximize the role of green financing in promoting sustainable startups, a holistic framework is required: 1. Mandate a Green Taxonomy: Introduce and enforce a national, standardized Green Taxonomy to standardize definitions, reduce green washing, and enhance transparency for investors funding early-stage ventures. 2. Targeted PSL Reforms: Revise PSL guidelines to set specific sub-targets for new-age, innovative climatetech startups to ensure credit reaches beyond established, low-risk renewable projects. 3. Financial Innovation: Institutionalize national De-risking Funds that provide first-loss guarantees, making high-impact climate-tech ventures a standard part of commercial investment portfolios. 4. Policy Alignment: Harmonize public financial incentives and align public sector financing decisions directly with the environmental dimensions of the Sustainable Development Goals (SDGs) Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-9(VIII)| September 2025 42 Conclusion and Future Scope Green financing is not a niche requirement but the backbone for India’s transition towards a resilient and competitive green economy. While India has shown strong domestic resolve by mobilizing significant resources through funds like NCEEF and institutional directives like PSL, the massive investment required for Net-Zero by 2070 necessitates better global cooperation and significant domestic policy refinement. References: 1. CEEW. (2021). India will require investments worth over USD 10 trillion to achieve netzero by 2070: CEEWCEF report. Council on Energy, Environment and Water. [https://www.ceew.in](https://www.ceew.in/pressreleases/india-will-requireinvestments-worth-over-usd-10-trillion-achieve-net-zero-2070-ceew) 2. OECD. (2024). Developed countries materially surpassed their USD 100 billion climate finance commitment in 2022. Organisation for Economic Co-operation and Development. [https://www.oecd.org](https://www.oecd.org/en/about/news/pressreleases/2024/05/developed-countries-materiallysurpassed-their-usd-100-billion-climatefinance-commitment-in-2022-oecd.html) 3. The Tribune. (2023). India needs $10 trillion by 2070 to meet its net-zero target: Govt. [https://www.tribuneindia.com](https://www.tribuneindia.com/news/business/indianeeds-10-trillion-by-2070-tomeet-its-net-zero-target-govt) 4. United Nations. (n.d.). Why finance climate action? from https://www.un.org/en/climatechange/why-financeclimate-action? 5. Organisation for Economic Co-operation and Development (OECD). (2024). Review on aligning finance with climate goals. https://www.oecd.org/content/dam/oecd/en/publications/reports/2022/10/clean-energyfinance-andinvestment-roadmap-of-india_a9979593/21b6e411-en.pdf 6. Climate Policy Initiative. (2024). Landscape of green finance in India. https://www.climatepolicyinitiative.org/publication/landscape-of-green-finance-in-india2024/ 7. Reserve Bank of India (RBI). (2023). Framework for acceptance of green deposits, from https://www.rbi.org.in/commonperson/English/Scripts/FAQs.aspx?Id=3545 8. Ministry of Finance, Government of India. (2025). Framework of India's climate finance taxonomy. https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/may/doc20255755 1101.pdf?utm 9. Bhatnagar, M. (2022). A wave of green start-ups in India: The study of green finance as a support system for sustainable entrepreneurship. AIMS Press. https://www.aimspress.com/article/doi/10.3934/GF.2022012 10 Kaur, R., & Singh, P. (2023). Digital finance and green entrepreneurship: Emerging trends in India’s startup ecosystem. International Journal of Management Studies, 10(2), 45–57.