Financing India's Green Shift: Understanding the IFSCA's Approach to Transition Finance at GIFT IFSC

INTRODUCTION India is on an ambitious journey toward net-zero emissions by 2070. Reaching this climate milestone isn’t just a national and ethical imperative, it’s an economic opportunity estimated to need over USD 10 trillion in investment.

How can this vast transition—from coal-fired steel plants to cleaner, more efficient cement, shipping, and aviation—take place?

The answer: robust, smart, and flexible “transition finance.” This blog explains how the International Financial Services Centre's Authority (IFSCA) at GIFT City is crafting the frameworks to unleash this new wave of climate-aligned investment.

A vision of sustainable urban living: A futuristic cityscape featuring green skyscrapers, solar panels, and wind turbines, seamlessly integrated under a clear blue sky.

What is Transition Finance and Why Does It Matter?

Beyond “Green” Finance

· Green finance generally targets projects already low- or zero-emission—solar, wind, battery storage, green bonds.

· Transition finance enables hard-to-abate, carbon-intensive sectors (steel, cement, chemicals, transport, shipping, etc.) to move stepwise toward net-zero by supporting intermediate, cleaner technologies and business model changes.

India’s Unique Challenge

· India needs to decarbonize not only new sectors but transform legacy industries. Many of these sectors lack immediate, cost-effective “green” alternatives.

· Transition finance bridges the gap—directing capital into incremental technology upgrades, alternative fuels, and innovation, as well as breakthrough pilots like green hydrogen or carbon capture.

Three Pillar Framework: The IFSCA Expert Committee's Recommendations

1. Scope and Definition

· Direct Listing of Priority Sectors: Instead of using overly complex labelling systems, the framework recommends directly listing sectors responsible for 90%+ of India's emissions (per India’s National Communication to UNFCCC).

· Interim Adoption of Global Standards: Recognize credible international taxonomies (EU, Japan, ASEAN, CBI, ICMA) and allow issuers to align with these until India finalizes its own.

· Trajectory Alignment: Permit alignment with either a 1.5°C or “well below 2.0°C” Paris target, providing flexibility for the Indian context but encouraging ambition.

· Corporate and Project Transition Plans: Mandate credible, science-based transition plans with clear, measurable milestones and regular progress reporting.

· Robust Third-Party Assurance: Mandate external verification to avoid “greenwashing.”

2. Policy and Regulation

Stimulating Demand for Transition Finance

· Sectoral Decarbonization Pathways: Encourage national and sectoral roadmaps and targets to create predictable demand for cleaner technologies.

· Policy Levers: Mix of supply- and demand-side interventions, including:

· Public RD&D funding/grants for new technologies

· Carbon pricing, emissions trading, and viability gap funding (VGF)

· Tax credits, stable procurement, and green public procurement policies

· Enhanced climate and ESG disclosures for corporates and financiers

Regulatory Recommendations

· Tax Incentives: Propose reduced/waived withholding tax for foreign transition finance investors via GIFT IFSC until 2030.

· Automatic Route for ECB: Allow transition bonds/loans to be raised as External Commercial Borrowings (ECBs) without restrictive end-use or maturity limitations.

· Blended Finance Facilitation: Encourage use of risk-sharing (e.g., credit guarantee funds by public entities like NIIF or IREDA), catalytic first-loss capital, and philanthropic CSR funding for pilot and high-risk ventures.

· Permission for Blended and Result-Based Labels: Recognize both “use of proceeds” instruments (like transition bonds) and “outcome-linked” instruments (like Sustainability-Linked Bonds).

3. Financial Instruments and Market Mechanisms

· Debt Products: Enable transition bonds/loans, convertible transition bonds, sustainability-linked bonds (SLBs), and sustainability-linked loans.

· Equity and Hybrid Instruments: Facilitate private equity, venture capital, alternate investment funds (AIFs), and blended finance funds that mix concessional and commercial capital.

· Risk Mitigation and De-Risking: Scale up partial credit guarantees, credit insurance, and support from Export Credit Agencies (ECAs)

· Carbon Finance and Trade: Structure innovative products like carbon contracts-for-difference (CCfDs) and results-based carbon transition bonds, and integrate carbon credits into financing.

Table: Examples of Transition Finance Mechanisms

Instrument Type	Purpose & Features
Transition Bonds/Loans	For sector upgrades; adhere to standards like LMA/ICMA/CBI
Convertible Transition Bonds	Allows conversion to equity, fosters investor flexibility
Sustainability-Linked Bonds (SLB)	Links coupon/bond features to emissions reduction targets
Partial Credit Guarantees	Public, philanthropic, or blended capital to lower lending risk
Carbon Contract for Difference	Govt pays difference between market & viable carbon price
Results-Based Carbon Bonds	Repayment partly in carbon credits if decarbonization targets met

Market Integrity: Safeguards Against Greenwashing

· Transparency and Disclosure: Issuers must provide regular, detailed reports on use of proceeds, key climate KPIs, and results of external audits/assurances.

· Science-Based Roadmaps: Alignment with recognized global pathways and transitions, not just broad commitments.

· Clear, Measurable Outcomes: Success of transition finance instruments tied to actual progress toward decarbonization, not intentions.

The Role of GIFT IFSC

· Global Gateway: GIFT IFSC is ideally positioned as a regulatory and financial bridge for both domestic and foreign capital in transition finance.

· FinTech and Data Solutions: Encourages development of Green FinTechs for sectoral data, ESG analytics, assurance provision, and digital ESG registries.

· Accessible Ecosystem: Flexible regulatory approach allows the adoption of best practices alongside the gradual development of a robust Indian transition finance taxonomy.

Summing Up: The Road Ahead

India’s net-zero journey is a multi-decade, multi-trillion-dollar transformation, with transition finance as its backbone. The IFSCA’s framework, by recognizing international standards, enabling innovative financing structures, and building in risk-mitigating and anti-greenwashing safeguards, aims to make GIFT IFSC the South Asian capital of credible transition finance.

Key Takeaways:

· Transition finance is essential for decarbonizing India’s “hard-to-abate” sectors on the road to net-zero.

· Flexibility in taxonomies, financing instruments, and regulatory approaches is critical to draw global capital now—while India develops its own standards.

· Intervention goes beyond financing: tax incentives, risk management facilities, blended finance, and demand-stimulating policy levers are all part of the puzzle.

· GIFT IFSC, with its innovative and open regulatory posture, can make India a go-to global hub for transition finance, supporting not just the nation but also regional and developing economies in their climate transitions.

The call to action Banks, corporates, investors, and policymakers should explore transition finance today—not just as a climate imperative, but as an investment opportunity for India’s sustainable future. For more, see the full report on the IFSCA website or contact the Climate Finance Committee for guidance and partnerships.

Disclaimer: This post is for informational purposes only and does not constitute legal, regulatory, or investment advice. Readers are advised to consult with professional advisors or refer to official IFSCA publications before making any decisions based on the content provided.