New Delhi [India], August 29 (ANI): Currency hedging could add 6-8 per cent to the annual financing costs of green projects in India, raising the cost of foreign capital and potentially discouraging global institutional investors from committing funds at scale, according to the India Sustainability Taskforce, a joint initiative of the Confederation of Indian Industry (CII) and IIM Ahmedabad.
The taskforce said most green projects in India generate revenues in Indian rupees, while international investors typically lend in hard currencies such as the US Dollar or Euro, creating a currency mismatch that raises the effective cost of overseas financing.
"Hedging long-term currency exposure is effectively impossible or very costly: rolling short-term hedges can add 6-8% to annual financing costs," the report said.
It said the currency risk adds to country-risk perceptions, emerging-market risk premia and project-level uncertainties that raise the cost of international capital for Indian clean investments.
The report noted that many global institutional investors shy away from committing funds at scale to India's climate-related projects, with conservative foreign capital such as North American and European pension funds viewing unmitigated currency risk as a major barrier.
To address the issue, the taskforce proposed a dedicated foreign exchange (FX) risk facility backed by public, multilateral or blended-finance capital, which could absorb part of the currency risk more efficiently than individual project investors.
The recommendation forms part of the broader financing framework proposed for a Green Finance Institution (GFI), which is envisaged as an impact-oriented blended-finance platform capable of deploying guarantees, insurance, junior capital and other instruments to reduce risks and mobilise private investment.
The report said, "Reducing the cost of capital is not a peripheral financing issue; it is a central determinant of whether new green technologies can be adopted at scale."
The taskforce also pointed to the elevated cost of capital facing Indian green investments. Even relatively mature clean-energy segments such as solar and wind face financing costs in India that are more than double those in advanced economies, while emerging technologies including battery storage, offshore wind and green hydrogen face steeper capital costs because of limited track records and bankable revenue models.
The proposed GFI would seek to address these barriers by combining concessional and commercial capital and deploying catalytic instruments, including FX-risk solutions, guarantees and climate insurance.
The report said the institution's core mission should be to mobilise investment at scale and reduce the weighted-average cost of capital for green infrastructure, transition, adaptation and resilience projects.
The taskforce's recommendations are part of a wider framework aimed at increasing the flow of domestic and international capital into India's sustainable development and supporting the country's climate and development goals. (ANI)
Currency hedging to add 6-8% to green project financing costs: CII-IIMA report
