Yash Kumar
Climate finance has emerged as the financial cornerstone of global efforts to mitigate and adapt to the impacts of climate change. With rising temperatures, erratic weather events, and increasing socioeconomic vulnerability, especially in the Global South, the real-world effectiveness of climate finance is under growing scrutiny. Yet, in countries like India and China, two of the world’s most influential emerging economies, the central question persists: Is climate finance delivering results on the ground, or is it still more rhetoric than reality?
India and China, while united by climate vulnerabilities and development challenges, have taken markedly different routes in financing climate action. India has leaned heavily on a blend of international grants, concessional loans, and an expanding green bond market. Initiatives like the Green Growth Equity Fund (GGEF), supported by the Green Climate Fund, have channelled climate investments into renewable energy and infrastructure. However, despite strong growth in the solar and wind sectors, India’s estimated annual climate finance requirement of $68 billion remains largely unmet.
Diverging Architectures of Climate Finance
India’s climate finance landscape is characterised by a mixed architecture involving multilateral funding, concessional loans, and a growing green bond market. Initiatives like the Green Growth Equity Fund (GGEF), backed by the Green Climate Fund, channel investments into low-carbon and climate-resilient sectors. The renewable energy ambition of India has been supported by international grants and loans. These grants provide direct assistance to India in the rapid expansion of its solar and wind energy. However, India still lacks $66 billion of its annual financing requirement, which aims to meet the 2030 climate goals, primarily those related to the adaptation measures. Private sector involvement, though increasing, remains centred mainly around large-scale, urban projects, sidelining vulnerable rural and semi-urban regions.
China, by contrast, exhibits a centrally coordinated, state-led climate finance framework. Over half of the nation’s climate spending is sourced from domestic policy banks and state-owned enterprises. According to the Green Finance & Development Centre, China’s green loan portfolio reached $4.9 trillion by late 2024, demonstrating both scale and speed. However, this top-down model heavily favours mega-projects in clean energy and electric mobility, while community-level adaptation and resilience initiatives often remain underfunded. Private green bond issuance has grown but slowed in 2024, suggesting a saturation in large-scale, bankable climate ventures without a commensurate rise in small-scale, decentralised adaptation financing.
Institutional and Implementation Barriers
Despite differences in structure, both countries face significant institutional and structural challenges that inhibit the full realisation of climate finance objectives. In India, overlapping responsibilities between ministries and slow disbursement processes weaken the execution of adaptation projects such as drip irrigation, reservoir upgrades, and early warning systems. Government initiatives like the Climate Adaptation and Finance in Rural India (CAFRI) have attempted to streamline planning and monitoring, but coordination issues and limited capacity at the state level persist.
Despite its financial muscle and policy consistency, China faces a different set of bottlenecks. The nation’s carbon market and green financial ecosystem are still maturing. The country’s financial structure suffers from imbalances and a lack of adequate mechanisms to incentivise local-level innovation and resilience. As a result, despite enormous investment figures, adaptation outcomes are disproportionately low in backwards provinces and regions that are most vulnerable to climate shocks, such as droughts and floods.
The Infrastructure deficits further undermine both countries’ climate goals. Poor grid connectivity, insufficient rural road networks, and limited cold storage infrastructure create barriers to scaling climate-resilient agriculture and energy access. These structural issues not only affect a project’s ability to work but also discourage private investors from funding these decentralised initiatives in less developed areas.
The Equity Dilemma: Who Benefits?
A central concern in the debate over climate finance is equity. While financial flows may be increasing, their distribution remains skewed. In India, climate finance often bypasses the poorest states and most vulnerable communities. The state of Odisha, for example, despite being frequently affected by cyclones and heatwaves, has only recently begun seeing targeted climate action initiatives, such as those under the CGIAR Climate Action Program. Yet, these are isolated efforts rather than part of a systemic, inclusive framework.
China similarly faces equity challenges. While the central government has allocated substantial funds, such as the $194 million emergency package in 2025 for agricultural disaster prevention, most climate spending is still funnelled into urban-industrial hubs.
The primary and most persistent challenge in the sector of climate finance is the mismatch between the flow of funds and ground-level vulnerability. In large and diverse nations such as India and China, the disparities in climate risk are not adequately mapped or reflected in the distribution of financial resources. This misalignment in the risk analysis further contributes to long-standing regional inequality. Unless climate finance mechanisms are designed to intentionally prioritise the most marginalised and climate-exposed communities, we run the danger of reinforcing rather than redressing existing divides.
Making Climate Finance Work: Policy Suggestions
To unlock the full potential of climate finance, both India and China must move beyond a model defined primarily by volume. The accurate measure of success lies not in how much is spent, but in what is achieved, for whom, and how sustainably.
First, institutional governance of climate finance needs urgent reform. At present, overlaying responsibilities, siloed decision-making, and bureaucratic inefficiencies lead to high transaction costs and slow down the implementation of critical projects. Clearer institutional roles and stronger coordination between agencies are essential to improve efficiency. Equally important is the inclusion of decentralised planning in financial systems, which allows state and local governments to better identify their needs and shape responses that are locally relevant and effective.
Second, strong infrastructure must be treated as a foundation for any meaningful climate action. This goes beyond just energy and transport systems, it includes digital infrastructure that supports real-time data collection, transparency, and adaptive decision-making. Without modernised power grids, reliable rural connectivity, and digital tools for monitoring and evaluation, climate projects will struggle to scale or sustain impact. These are no longer optional features; they are core to building climate resilience.
Third, building technical capacity at the local and regional levels is critical. Many climate projects falter not because of a lack of funding, but because local actors are not adequately equipped to design or implement them. Systematic training, the development of local expertise, and participatory planning are essential. When communities are involved from the start, climate interventions become more effective, more legitimate, and more likely to succeed in the long term.
Finally, equity must be placed at the core of climate finance. This means ensuring that funding decisions are informed by data on who is most vulnerable and that protections are in place throughout the project lifecycle. It also means giving voice and power to those who are often left out of decision-making, like civil society, local governments, and marginalised communities. Inclusive and transparent governance not only strengthens accountability but also leads to more just and impactful outcomes.
Conclusion:
India and China have, over the past half-decade, mobilised impressive levels of climate finance. Yet the actual test lies in whether this finance leads to structural change, whether it helps build adaptive capacity, reduce vulnerability, and promote long-term equity.
India’s approach, while institutionally diverse and bottom-up in spirit, suffers from fragmentation and uneven execution. China’s more centralised model brings coherence and scale but often sidelines participatory and community-led approaches. Neither model, in its current form, is sufficient to address the complexity and urgency of climate challenges. What is required now is a strategic reorientation. Climate finance must evolve from a numbers game into a tool of transformation, one that champions inclusivity, builds resilience, and
addresses historic inequalities. Only then can it truly serve as a foundation for sustainable, just, and climate-resilient development.
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Acknowledgement: I extend my heartfelt gratitude to the IMPRI team, especially Ms. Asthaba Jadeja, for her unwavering support and continuous assistance throughout the Environmental Policy and Action Youth Fellowship. Their dedication to empowering youth in the development sector is truly commendable.
About The Contributor: Yash Kumar is a research intern at IMPRI, pursuing his Bachelor of Arts (Hons) in Economics and Sociology with a minor in Political Science from Christ University, Bangalore and a Fellow of the Environment Policy and Action Youth Fellowship (EPAYF) Cohort 2.0.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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Acknowledgment: This article was posted by Riya Rawat, researcher at IMPRI.
