Green Financing through Cooperative Credit and Banking Institutions

Introduction

The United Nations launched the Millennium Development Goals (MDGs) in 2000 with the mission of eradicating extreme poverty, hunger, disease, and inequality by the year 2015. One of the important goals was to ensure environmental sustainability. Fifteen years of concerted efforts by international agencies and governments yielded significant results. To sustain this momentum, the United Nations introduced the Sustainable Development Goals (SDGs) in 2015, comprising 17 goals to be achieved over a 15-year implementation period.

The SDGs are interconnected and structured around five core pillars of sustainable development: People, Planet, Prosperity, Peace, and Partnership. Development intervention agencies across the world are designing and implementing programmes aimed at protecting the planet. One of the most serious threats to the Earth is the emission of greenhouse gases, including carbon dioxide, methane, nitrous oxide, and fluorinated gases. The primary cause of greenhouse gas emissions is the burning of fossil fuels such as coal, oil, and natural gas for electricity generation, heating, and transportation. In addition, the burning of agricultural waste contributes significantly to air pollution. The solution to this growing menace lies in the identification and promotion of alternative energy sources. This is where green financing assumes great importance.

Concept of Green Financing

The United Nations Environment Programme (UNEP) defines green financing as follows:

“Green financing is to increase the level of financial flows (from banking, micro-credit, insurance, and investment) from the public, private, and not-for-profit sectors to sustainable development priorities. A key part of this is to better manage environmental and social risks, take up opportunities that bring both a decent rate of return and environmental benefit, and deliver greater accountability.”

Financing agencies mobilise the funds required for green financing through various mechanisms. Major sources of funding include the issuance of green bonds, with or without government guarantees. International agencies such as the Green Climate Fund, along with national governments, also provide refinancing support for green initiatives. Furthermore, government budget allocations and central bank directives relating to priority sector lending increasingly incorporate green financing objectives. In addition to these sources, Public-Private Partnership (PPP) projects are playing an important role in supporting green ventures.

Green financing is intended to encourage investments in environmentally sustainable projects. It promotes the achievement of the Sustainable Development Goals by directing investments towards eco-friendly projects, renewable energy generation, and climate-resilience initiatives. Such investments benefit businesses, governments, and local communities alike. Environmentally friendly projects are increasingly viewed as a win-win strategy for both producers and consumers. Simultaneously, they contribute to steering national economies towards sustainable development.

In India, the following institutions extend financial assistance for green projects:

Public Financial Institutions

1. Indian Renewable Energy Development Agency (IREDA):

IREDA is engaged in promoting, developing, and extending financial assistance for projects related to new and renewable sources of energy as well as energy efficiency and conservation, guided by its motto, “Energy for Ever.”

2. Power Finance Corporation (PFC):

PFC is one of the largest green financing institutions among Government of India undertakings.

3. REC Limited:

REC provides long-term loans and other financing products to state governments, the central government, and private companies for the creation of infrastructure assets in the country. It functions as a competitive, client-friendly, and development-oriented organisation, financing and promoting projects related to power generation, power conservation, power transmission, and power distribution networks.

4. Small Industries Development Bank of India (SIDBI):

SIDBI serves as the principal financial institution for the promotion, financing, and development of the Micro, Small, and Medium Enterprises (MSME) sector. It also coordinates the functions of institutions engaged in similar activities.

5. Commercial Banks:

Commercial banks such as the State Bank of India, Yes Bank, Bank of Baroda, HDFC Bank, and others provide financial support for green initiatives.

6. Other Non-Banking Financial Companies (NBFCs):

Several NBFCs are also actively involved in financing environmentally sustainable projects. According to the report Landscape of Green Finance in India, green finance flows to sectors such as clean energy, clean transportation, energy efficiency, and selected adaptation sectors. The report highlights that India’s tracked green finance reached an all-time high in 2021–22. However, substantially greater investment is still required to meet the country’s climate targets. The findings further indicate that the growth in green finance has been driven by both domestic and international funding sources and has been supported by a combination of policy interventions, fiscal instruments, and market mechanisms introduced by the Government of India to encourage green investment.

Against the above backdrop, it is imperative to examine the role of cooperative credit and banking institutions in financing green initiatives.

Cooperative Credit and Banking Institutions in India

The cooperative movement in India was initiated through the Cooperative Credit Societies Act, 1904, which paved the way for the establishment of cooperative credit societies aimed at promoting thrift, self-help, and agricultural credit delivery to the farming community. Thereafter, the cooperative movement expanded rapidly.

According to the National Cooperative Database (2023), India has 800,203 cooperatives with a membership of 291,280,275. This implies that approximately one out of every five Indians is associated with the cooperative movement. Today, cooperatives cater to the needs of citizens from cradle to grave. In the sphere of credit delivery and banking, the cooperative network is extensive and has penetrated almost every corner of the country. A distinctive feature of cooperatives is their ability to provide last-mile credit and facilitate localised financial intermediation.

Since cooperation is a State subject under the Constitution, most cooperative societies are governed by the respective State Cooperative Societies Acts. However, Multi-State Cooperative Societies are governed by the Multi-State Cooperative Societies Act. According to the Reserve Bank of India’s Report on Trends and Progress of Banking in India 2024–25, there are 1,10,105 cooperative credit and banking institutions operating in the country. The cooperative credit structure consists of two streams: the short-term cooperative credit structure and the long-term cooperative credit structure. Short-term cooperative credit institutions provide loans for agricultural operations, while long-term cooperative credit institutions finance investments in agricultural development activities.

At present, there are 34 State Cooperative Banks, 351 District Central Cooperative Banks, and 1,07,641 Primary Agricultural Credit Societies (PACS) functioning in the country. In addition, India has 13 State Cooperative Agricultural and Rural Development Banks and 609 Primary Cooperative Agricultural and Rural Development Banks.

To cater to the needs of the urban working class, the country has 49 Scheduled Urban Cooperative Banks and 1,408 Non-Scheduled Urban Cooperative Banks. Collectively, the consolidated assets of the cooperative banking sector stood at ₹24.5 lakh crore as of March 2024. Furthermore, Employees’ Cooperative Credit Societies and Multipurpose Cooperative Societies are also engaged in credit-related activities.

Considering the vastness of this network and the fact that cooperatives operate on democratic principles, they have a moral responsibility to contribute towards achieving the Sustainable Development Goals of the United Nations. Moreover, the International Cooperative Alliance (ICA), the global representative body of the cooperative movement, has adopted the SDGs as a key policy framework and promotes cooperatives as sustainable business models.

Therefore, Indian cooperative credit and banking institutions, which are actively involved in thrift, savings, microcredit, and insurance services, can play a significant role in green financing. They can mobilise funds from:

-Members

-Higher financing agencies (cooperatives, commercial banks, and other non-banking financial companies)

-Government sources

These funds may then be lent to green projects undertaken by:

-Village Panchayats

-Individuals

-Self-Help Groups (SHGs)

-Other cooperatives

Cooperative institutions can finance biogas plants, solar energy systems, and wind energy projects for both household consumption and agricultural purposes. Additionally, pollution control and waste management projects can be designed and implemented through local self-government institutions with the support of cooperative financing.

Conclusion

Across the world, the generation and use of renewable energy are gaining momentum. Reducing dependence on fossil fuels has become an imperative for both corporations and nations. Climate-resilient practices are increasingly being promoted as essential components of sustainable development.

Cooperatives function on the principle of concern for the community and are naturally aligned with the objectives of the Sustainable Development Goals. The extensive network of cooperatives in India has the potential to transform itself into a major user, promoter, and financier of renewable energy initiatives. With their vast human capital and grassroots reach, cooperatives can implement environmentally friendly green initiatives effectively and vibrantly across all regions of the country.

It is therefore time for policymakers, both at the Union and State levels, to recognise and promote cooperatives as important instruments of green financing. Such a strategy would significantly contribute to the creation of a sustainable and carbon-neutral planet.