Overview: Growing demand needs support to scale

India’s sustainable finance market is entering a definitive phase, with cumulative green, social, sustainability, and sustainability-linked (GSS+) issuances surpassing USD60bn by December 2025. This survey covers 60 investors managing USD26tn in overall assets, including USD12tn in debt investments. A significant shift is occurring as 75% of respondents now view climate change as a financial opportunity rather than purely a risk to be managed.

Understanding investor preferences is key to unlocking capital

Unlocking trillions in capital requires deeper participation from domestic institutional capital. Currently, international institutions represent 87% of the total AUM in the survey. Domestic investors, who make up 65% of respondents, often lack explicit green mandates. Capital mobilisation is currently hindered by a persistent lack of visible project pipelines and fragmented regulatory frameworks, resulting in small and opportunistic participation from local players.

Mandates, fundamentals and pipelines drive capital flows

Investment decisions are driven by board-level mandates and regulatory guidelines. While international investors and banks report nearly 100% integration of climate factors, domestic mutual funds and insurers often lag behind, relying on traditional credit frameworks. Ticket size preferences vary, with global investors seeking transactions between USD50m and USD500m+, while domestic entities focus on smaller deals between USD10m and USD50m.

Label credibility builds investor confidence

Credibility is maintained through certification, Second Party Opinions (SPOs), and robust impact reporting. Approximately 75% of investors view these as essential, with 76% preferring alignment with recognised taxonomies like the Climate Bonds Standard. Investors warned of “label fatigue” due to the proliferation of diverse sustainability labels and advocate for a taxonomy-driven approach to simplify due diligence and improve market comparability.

Climate governance and disclosures are improving, but measurement lags

Awareness is rising, with 72% of respondents reporting board-level climate oversight. However, practical measurement remains nascent. While 50% of participants have committed to net-zero or interim targets, only 43% have computed their financed emissions. Investors emphasised that reporting standards should be designed to support active capital allocation and decision-making rather than becoming mere compliance-driven exercises.

Transition and resilience investments poised to drive next growth cycle

Renewable energy remains the leading sector, but interest is rising in electric mobility (83%) and sustainable infrastructure (67%). Transition finance is maturing, with global investors moving away from exclusion models towards financing transformation. Adaptation and resilience are gaining importance, particularly for DFIs (90% interest). However, scaling these areas requires clearer investable models and blended finance mechanisms to bridge impact and returns.

Scaling sustainable finance: Important enablers

Supportive policy and regulations are vital for directing capital. The lack of an interoperable national climate finance taxonomy is a primary barrier for international investors. Key enablers include forward-looking policy signals, such as green bond roadmaps, and the potential for the Securities and Exchange Board of India (SEBI) to introduce dedicated ESG debt fund categories. Reducing high transaction costs and simplifying issuance processes will also be critical.

Conclusions and the way forward

Policymakers should publish a science-based taxonomy and implement a minimum climate allocation threshold of 3–5% for domestic pension and insurance funds. Issuers are advised to engage investors 6–12 months before issuance and ensure timely impact reporting to maintain benchmark index status. Investors should proactively share mandate requirements with issuers and translate emissions data into structured engagement strategies with high-emitting companies.