With rising climate risks and global focus on sustainability, Green Finance has become one of the most important funding mechanisms in 2025. Governments, banks, NBFCs, and global institutions are actively promoting eco-friendly projects by offering special financial products known as Green Loans, ESG Funding, and Climate Finance.
This blog explains everything about Green Finance—what it is, how it works, eligibility, application process, merits, demerits, and FAQs.
Green Finance refers to financial products and investments that support environmentally sustainable projects.
Its main objective is to reduce carbon emissions, promote renewable energy, conserve natural resources, and support climate-resilient growth.
Green finance includes:
Green Loans
Green Bonds
ESG Funding
Climate Finance
Sustainability-linked loans
A Green Finance Scheme is a funding program offered by banks, NBFCs, multilateral agencies (World Bank, ADB), and government institutions to support projects that deliver environmental benefits.
These schemes usually offer:
Lower interest rates
Longer repayment tenure
Priority sector support
Interest subvention (in some cases)
Loans given for specific green projects such as:
Solar power plants
EV charging stations
Energy-efficient buildings
Waste management projects
Funding based on Environmental, Social, and Governance (ESG) performance of a company.
Large-scale funding aimed at climate change mitigation and adaptation projects like:
Flood control
Water conservation
Climate-resilient agriculture
Debt instruments issued to finance green infrastructure and sustainability projects.
Renewable Energy (Solar, Wind, Bio-energy)
Electric Vehicles & EV Infrastructure
Waste Management & Recycling
Water & Sanitation Projects
Green Buildings (IGBC/LEED certified)
Sustainable Agriculture
Energy-efficient Manufacturing
Focus on environmental sustainability
Lower cost of funds
Long-term financing
Global investor participation
Compliance with ESG norms
Monitoring of fund usage
Eligibility may vary by lender, but generally includes:
Individual / Company / MSME / Startup
Project must be environment-friendly
Clear project report / DPR
Compliance with ESG or green norms
Stable financials (for businesses)
Required statutory approvals
KYC documents
Project Report / DPR
Environmental impact details
Financial statements / ITR
Bank statements
ESG or sustainability declaration
1?? Identify your green project
2?? Prepare a detailed project report (DPR)
3?? Approach bank / NBFC / financial institution
4?? Submit application with documents
5?? Technical & environmental evaluation
6?? Credit approval & sanction
7?? Disbursement linked to project milestones
| Merits | Demerits |
|---|---|
| Lower interest rates | Strict compliance norms |
| Supports sustainability | Detailed documentation |
| Long repayment tenure | Limited eligible sectors |
| Government & global support | Monitoring of fund usage |
| Improves ESG rating | Approval may take time |
India’s Net-Zero 2070 target
Rising energy costs
Climate change regulations
Investor preference for ESG companies
Government incentives for green projects
| Green Finance | Traditional Finance |
|---|---|
| Eco-friendly focus | Profit-only focus |
| ESG compliance | No ESG requirement |
| Climate impact measured | No impact tracking |
| Preferential pricing | Normal pricing |
Green finance means funding projects that help protect the environment and reduce pollution.
Individuals, MSMEs, startups, corporates, and government bodies involved in green projects.
Yes, in many cases green loans offer lower interest rates.
Funding based on Environmental, Social, and Governance performance of a company.
Mostly secured, but some small green loans may be unsecured.
PSU banks, private banks, NBFCs, SIDBI, NABARD, and multilateral agencies.
Project report, environmental compliance, financials, and KYC documents.
Yes, green startups are highly encouraged.
Funding focused on climate change mitigation and adaptation projects.
Yes, lenders track fund usage to ensure environmental impact.
Green Finance is not
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