India has consistently been the largest borrower from the Asian Infrastructure Investment Bank (AIIB) since its inception in 2016, including for several major green financing initiatives. In an interaction with Pushpita Dey, Erik Berglöf, Chief Economist of AIIB, discusses how India can accelerate its transition to a greener economy through policy reforms and international collaboration. Edited excerpts:
Despite the global push for green financing and sustainable infrastructure, emerging economies like India still face hurdles in mobilising green capital. What key steps should India take to accelerate its transition to a greener economy?
What India has achieved in installing renewable energy at very low cost is remarkable, and it has been driven largely by the private sector, supported by effective government policies. But challenges remain—particularly in phasing out coal-based power infrastructure. Significant investment is needed in transmission grids and demand-side improvements that give consumers better control over how much energy they use and what type of energy they consume.
Domestic resource mobilisation must be at the core of this transition—getting the banking system and private sector more deeply involved. But India also has a huge opportunity to attract foreign investment. This is an area where I don’t see enough action yet. Other emerging economies have created country platforms that coordinate and bring transparency to how foreign capital can contribute.
For example, Egypt placed its entire renewable energy pipeline on its country platform, making it visible to multilateral development banks, national development banks, and private investors. As a result, it attracted new forms of green finance, such as a performance-linked bond tied to policy commitments by the Egyptian government. Instruments like this could complement existing forms of green finance in India.
What are the key challenges emerging economies face in achieving sustainable financing and infrastructure, and how can they align their goals with AIIB’s mission and vision?
India is our largest client and the single biggest borrower. We recently approved a $1.1 billion project in Maharashtra, focusing largely on off-grid solar and grid investments. We work across many Indian states, and engagement is strong, but somewhat uncoordinated. There are multiple approaches and not always mutually consistent targets.
Creating a structure that brings together state-level activities would help significantly. We also have a new instrument—policy-based lending for climate—which could be very useful for India. It allows us to lend against policy actions that push the green agenda forward.
How do you assess the global momentum around green financing, especially in light of the recent slowdown in initiatives from major economies like the US?
There are several new coalitions forming around climate action. Europe is trying to take a more assertive role, and Asia too has an opportunity to integrate economies around a shared mission of reducing climate vulnerability.
While uncertainty around US policy persists—particularly in the medium to long term—there is still room for optimism. Uncertainty is never ideal, but it also creates space for other actors to step up.
In the context of green financing and infrastructure, which countries are more prone to debt vulnerabilities, and how can they address these risks?
Debt levels rose sharply after COVID, leaving many countries vulnerable to interest rate fluctuations. This is a real concern. However, on the climate front, there is still substantial international capital looking for investment opportunities—provided countries have credible climate policies.
There is also significant potential for collaboration. Europe and Asia, and Europe and India specifically, have strong complementarities. Likewise, cooperation between China and Europe could be valuable. Europe brings sophisticated policy frameworks and demand management; China brings world-leading technologies. These strengths could converge in India, helping the country achieve the climate goals set by the Prime Minister.