The finance ministry is examining the possibility of allowing financial institutions to raise funds from blended finance instruments to invest in green climate projects, sources said.

Blended finance involves the leveraging of financial resources of the public sector or philanthropies to phase in private sector investment, thereby catalysing private finance in high-risk and long-gestation projects.

The use of blended finance promotes investments in new and emerging sectors and it attracts commercial capital towards projects that contribute to sustainable development while providing financial returns to investors, the sources said, adding, it holds the potential to catalyse private finance in such projects.

It is still to be tested and therefore the ministry is looking at it from all possible angles, the sources said.

Blended finance is aligned with Prime Minister Narendra Modi’s goal to cut its emissions to net zero by 2070.

Last year, the Union cabinet approved India’s updated Nationally Determined Contributions (NDCs) incorporating the Prime Minister’s ‘Panchamrit’ strategy announced at the Glasgow conference into enhanced climate targets.