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Green finance drives sustainable development, Net Zero goals and climate action, bridging the $4 trillion SDG funding gap worldwide

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Suresh Chandra Sarangi

ODISHA, 26 February 2026

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It is quite disturbing that while the planet is gasping for breath, the gregarious nature of humans has set the world on fire by waging constant war. Our green planet, that blue dot in the universe, is collapsing and its ecosystem is breaking. Climate change has wrought the greatest havoc, and the planet today is oscillating between hope and despair.

The burning planet is inhospitable, posing an existential crisis, leading to what is deemed to be the largest recipe for a disaster for the mass extinction of our species. The United Nations has defined climate change as “a long-term shift in global temperatures and weather patterns, primarily driven by human activities like burning fossil fuels, since the 1800s. The damage is already done. The planet needs to survive, as we do not have a second one. Our planet has to be sustainable. At this juncture, green finance works like a catalyst that will protect the damage from further loss of biodiversity, natural ecosystem and life forms on Earth.

Sustainable development is defined by the Brundtland report as meeting present needs without compromising the needs of future generations. It balances three interconnected pillars of economic growth, social inclusion, and environmental protection. The origin of the concept is found in the report “Our Common Future”, gaining momentum in Rio Earth Summit. In 2015, the Sustainable Goals Agenda was adopted, establishing 17 parameters. Greta Thunberg’s  2019 speech, “How dare you,” to compromise our future brought the  subject into focus, and it  became of paramount importance. Focused and urgent steps in the subsequent IPCC, are essential to advancing sustainable development and safeguarding the future of our planet.

The 17 sustainable goals, which were adopted in 2015 was to be realised by 2030, though at present, we are far from the goals and dreams. The goals border on eradication of poverty, Zero hunger, Good health, all-around education, understand equality, clean water and sanitation, affordable and clean energy, sustainable cities, responsible consumption and production, climate action, life below water, life on land. But during the Paris agreement of 2015, it was decided that the temperature of the planet be kept below 2 degrees Celsius above the preindustrial period,1850 to 1900, by the turn of the century to avoid any climate disaster. But 2 degrees Celsius would again cause irreversible changes, such as greater sea-water precipitation, the killing of natural systems and the biosphere, which may accelerate the pace of climate change. Thus, it was decided to set it at 1.5% above pre-industrial levels, to minimise loss and ensure some degree of sustainability.

Let us know that the concept of green finance originated as a movement in 1970, finding its roots in the concept of sustainable development. The United Nations Environmental Programme Finance Initiative was established in 1992. The Paris agreement, a watershed moment in the development of green finance, solidified it as a critical tool, and subsequently, the G20 nations formally focused on it. Green finance is aimed at ensuring the flow of public, private, and non-profit finance organisations’ participation to meet the sustainable development priorities.

The Green Climate Fund was officially established at COP 16, in Mexico, in 2010. In the COP 21, another conference of parties, it was decided to create a climate fund of 100 billion US dollars to assist the least developed countries for a spurt in growth of green finance. Finally, in the 29th Conference of the Parties (COP29), it was decided to have a collective action.

Rising temperature, erratic monsoon, flood, glacier melting, hurricane, the sustainability is under question, and it seems climate change is becoming a real, more intense, and global concern. In 2023, the concept of Environmental, Social, and Governance was adopted to measure sustainability. Thus, green finance made inroads as traditional finance failed to make inroads. Green finance is a tool as well as a mechanism that meets the funding gaps of climate finance. The traditional banking system is averse to going for green finance, as it has a long gestation period, lower returns, and higher risks. The adoption of BASEL norms and the prudential guidelines of income recognition, asset classification, and provisioning make it difficult for banks to enter the new terrain of financing.

Banks mobilize resources and allocate them for advances. The resources are mainly demand deposits such as savings bank and current deposits, or short-term- medium term fixed deposits, whereas green finance is preferably long-term, leading to Asset Liability mismatch, leading to the generation of NPA. So, venture capital or NBFC finance is available as long-term finance, or pension funds and insurance funds are more useful and practicable sources of finance to redeem green finance. The most important forms are the issuance of green bonds by the state and central government, which would go a long way in solving the issue of green finance where mushrooming of equity or hybrid funds and mobilizing resources through IPO for renewable energy. But in the Indian context, electric vehicles, wind energy, etc. though we’re launched with fanfare, ultimately they appeared to be a fiasco.

Despite all this, the financing gap for achieving the covenants of SDG in developing countries is estimated at 4 trillion annually, as per UNCTAD data. Global climate finance reached approximately $1.3 trillion per year as per the climate policy report of 2023. Here comes the concept of “Net Zero,” which means steps are to be initiated to ensure that the greenhouse gases, and particularly, carbon related emission has to be balanced by absorption of that much carbon dioxide, so that net accretion becomes zero. The challenge is not conceptual, but a reality. More than 140 countries have since adopted the Net Zero target within the global framework.

Climate risks are factored into insurance pricing, sovereign ratings, and supply chains, as per World Bank and IMF analysis. The resilient investment, it is observed, generates strong economic returns, and the global commission on adaptation estimates cost-benefit ratios between 2:1 and 10:1. This means each dollar spent in green finance may pay back several dollars in the future and thus, is helpful in climate crisis mitigation. Besides, providing energy security, reducing fossil fuel and carbon footprints shields the nation from global price vulnerability, and this leads to macroeconomic stability. Let all central banks monitor green finance like all other traditional finance, and it would bring climate sustainability. Interestingly, a nation’s fiscal policy must be explored to find out areas where rebates would be available for income tax, and subsidies must enhance the flow of green finance.

As per IPCC findings, developed economies contribute disproportionately to historical emissions. International climate finance commitments seek to mobilise US$100 billion. To steer clear of the climate crisis, nations must try to convert the challenge into an opportunity. Then this blue dot in the universe becomes a livable planet.

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(The writer is a former General Manager of Bank of India. Views expressed are personal.)

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