Environmentally and Socially Responsible Infrastructure Finance

Abstract

Abstract For sustainable infrastructure, projects have to be financially, economically, environmentally, and socially sustainable. While countries like India have traditionally been looking at financial and economic viability through metrics like financial internal rate of return (FIRR), net present value (NPV), economic internal rate of return (EIRR), and so on, not much attention has been given to environmental and social sustainability. However, being responsible entities, and as multilateral financial institutions and institutional investors also look at environmental and social sustainability before committing investments, these concerns have to be on-boarded. This chapter looks at these issues. The alignment of environmental principles with infrastructure investments and projects is necessary for sustainable development, as also their financing. Many financial institutions have voluntarily adhered to Equator Principles, Carbon Principles, and Climate Principles, thereby preventing them from financing projects that are not aligned to these principles. Green bonds are also being increasingly used for financing infrastructure projects. For India, green bonds would be the key to meeting the ambitious target of building 175 GW of renewable energy capacity by 2022 and 450GW of renewable energy capacity by 2030. The chapter will explore the Equator, Carbon, and Climate Principles, as also the green bond, climate bond, and social bond avenues for financing infrastructure projects. In this context, the chapter will also discuss whether exploitation of renewable energy (through the case study of the Solar Energy Corporation of India Ltd.) is the silver bullet that mitigates the traditional trade-off between growth and environment to enable sustainable development.