Financing India’s Climate Future: From Fragmented Flows to Systemic Resilience

India’s clean energy transition is gathering pace yet much of the available climate finance continues to flow towards asset-level investments in solar and wind projects. The assets themselves face growing climate risks from floods and cyclones to heatwaves that can curtail performance, damage collateral and drive-up insurance costs. Protecting investor returns and community wellbeing requires an evolution in mitigation finance that integrates resilience into infrastructure, design, risk assessment and broader energy systems.

Today, financial portfolios carry two types of climate change risks: physical and transition. Physical risks arise from extreme weather events such as floods in northeast India or heatwaves in north India. These disasters damage collateral, disrupt operations and trigger steep insurance claims. Transition risks arise when policy shifts, technology breakthroughs or market changes render carbon-intensive assets unviable. Banks and investors are beginning to measure and disclose these risks under frameworks such as Task Force on Climate-Related Financial Disclosures and Glasgow Financial Alliance for Net Zero. However, assessing risk is only the first step.

To withstand climate stress, renewable energy projects should move beyond carbon reduction. In coastal regions, developers are mounting solar panels on raised frames to avoid flood damage. Turbines are engineered to tolerate higher wind gusts. Distributed generation models such as rooftop solar and microgrids are gaining momentum as they reduce transmission losses and maintain power during large-scale grid failures. Such measures boost reliability but involve higher upfront costs. Concessional capital from the government or multilateral agencies blended with private investment is essential to scale resilient infrastructure.

Despite promising innovations, climate finance still largely remains fragmented and asset-centric, focused on solar or wind generation. This narrow approach neglects interdependencies across power grids, energy storage systems and supply chains for critical inputs such as battery materials. For banks and investors in renewable energy, the benefits of exposure to climate-resilient infrastructure will take years or even decades to realise. However, as short-term climate-risk scenarios are incorporated into financial institutions’ analysis and stress testing of portfolios, the value proposition of resilient low-carbon assets is expected to gain more recognition.

The insurance sector offers a real-time view of escalating climate costs. In 2022 alone, hail-related claims on solar installations in the US totalled $300–400mn, pushing premiums up by 15–45% and causing underwriters to cap coverage.

For financial institutions, deploying capital through “systemic financing” models rather than fragmented asset-centric approaches can help mitigate climate risk more effectively—enabling banks and investors to assess interdependencies and manage risks across portfolios in an integrated manner. Systemic financing directed towards grid flexibility and modernisation, storage and demand-side management, resilient supply chains (e.g. for battery materials) and interconnected clean energy assets can help alleviate climate risks by bridging structural barriers that undermine large-scale decarbonisation.

Shifting from siloed projects to systemic resilience in India will necessitate a suite of enabling tools:

Robust Climate Data
 A national database on climate adaptation and vulnerability will help financiers model risk more accurately. The RBI’s Climate Risk Information System is a welcome start but must expand coverage to include granular local data.

Regulatory Innovation
The RBI’s inclusion of sustainable finance and climate risk in its regulatory sandbox enables fintechs and banks to test new risk-analysis tools, green credit products and parametric insurance models. Scaling such an initiative will help bring innovative solutions to the market more rapidly.

Green Budgeting
Embedding resilience projects in state budgets ensures public spending aligns with adaptation priorities. States such as Odisha and Kerala now include climate-relevant allocations in their budgets, setting a model for other states.

Climate Finance Taxonomy
 India’s evolving taxonomy should clearly define “resilient” activities such as renewable-powered cold chains or flood-proof housing to guide investors and policymakers. A robust taxonomy will spur instruments such as resilience bonds and adaptation-focused green loans and align capital flows with India’s National Adaptation Plan, the UN’s Sustainable Development Goals and Nationally Determined Contributions.

A climate-resilient finance architecture also underpins a Just Transition. Embedding resilience protects livelihoods, small businesses and frontline communities from climate shocks. Financing projects that integrate clean energy with flood-resistant design, agricultural drought shelters or climate-smart drinking water systems can protect vulnerable groups and extend the benefits of India’s energy transition to those most at risk.

India’s path to a Just Transition requires a fundamental rethink of financing models that move:

• From reactive responses to anticipatory planning

• From individual assets to integrated systems that blend mitigation and adaptation

• From narrow carbon metrics to multi-dimensional measures of climate value

• From global templates to solutions tailored to India’s diverse geographies and communities

As climate volatility intensifies, resilience is no longer optional. It becomes a strategic advantage for investors and a social imperative for communities. Realigning finance with resilience can help India secure a clean energy transition that is rapid, inclusive and future-proof.