India is undergoing an ambitious energy transition, and as the country accelerates its path to decarbonisation this shift must be both fast and fair.
Financial regulators like the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) have been advancing ESG , green finance and disclosure norms to support decarbonisation. However, the social impacts of this shift need stronger integration into financial regulation so a just transition ensures that climate action protects workers, communities and vulnerable sectors.
Insights from our stakeholder consultations highlight that in India financial policy has historically aligned with development goals. The energy transition could follow the same path. By embedding just transition into their climate strategies, SEBI and RBI can build a financial system that is resilient, inclusive and aligned with long-term economic justice.
Aligning capital markets with inclusive and just transition
Capital markets serve as a powerful lever to reorient financial flows. Sebi’s leadership in creating a sustainable finance ecosystem through regulatory instruments such as the Business Responsibility and Sustainability Report (BRSR), green debt securities, ESG funds and the Social Stock Exchange has laid a strong foundation.
Introduced in 2021, the BRSR framework mandates the top 1,000 listed companies to disclose on ESG metrics. Several of the nine principles already touch upon social issues like labour welfare and community engagement. However, explicit just transition indicators such as reskilling initiatives for fossil fuel sector workers or disclosures on the social impact of decarbonisation are still missing.
Aligning BRSR with global just transition frameworks, such as International Labour Organization’s guidelines, would enable investors to assess not just how companies are decarbonising, but also how they are supporting workers and communities in this process. A study by the London School of Economics has compared the BRSR to ILO’s just transition metrics and found significant overlap, and while the BRSR doesn’t explicitly use the just transition term, it has extensive social indicators.
Sebi’s regulation of ESG rating providers improves transparency but lacks focus on just transition aspects like worker and community impacts. ESG ratings should assess companies’ strategies, sector-specific risks and social risk integration. Likewise, ESG investment products need stronger disclosures on how just transition principles such as social inclusion and worker support are embedded. Mandating such disclosures and creating just transition-focused thematic funds can guide capital towards fairer transitions and attract international investors.
The Social Stock Exchange can become a powerful tool for financing non-profit and social enterprises working on just transition-aligned initiatives, such as reskilling coal-dependent communities or creating alternative livelihoods. Policy refinements such as enabling blended finance models or issuing just transition-dedicated social bonds can deepen the impact of this platform.
While Sebi has established the building blocks of a sustainable capital market, the integration of just transition-specific metrics and indicators remains limited. Sebi can work with ESG providers, corporate leaders and research institutions to develop sectoral guidance and measurement tools. By doing so, it can align the pace of green finance with the equity and justice imperatives of a rapidly transforming economy.
Guiding banks towards inclusive climate risk management
The RBI plays a critical role in shaping the direction of capital flows in the economy through its regulatory and supervisory mandate. Its climate strategy has advanced significantly in recent years, from the creation of the sustainable finance group in 2021 to the publication of the draft climate disclosure framework in 2024.
Enhancing this framework is crucial: the current version calls on financial institutions to disclose climate risks and undertake stress testing but does not yet classify just transition factors as a material financial risk. The framework can be strengthened by including socio-economic impacts of the climate transition, detailing sector-wise exposure to carbon-intensive industries and outlining financing strategies for economic diversification in vulnerable regions. These additions would help the banking system adopt a more comprehensive and holistic approach to risk assessment.
The 2022 climate risk and sustainable finance survey highlighted that only 30% of Indian banks have integrated climate risk frameworks. Future editions of the survey could expand their scope by tracking how banks are developing policies to finance sectors aligned with just transition objectives. They could also assess the extent to which banks are integrating strategies to support worker and community resilience and promote capacity-building efforts focused on managing social risks within financial institutions.
The RBI’s green deposits programme can be fine-tuned to include projects that not only reduce emissions but also deliver social co-benefits. For instance, clean energy projects that focus on retraining fossil fuel workers or investing in rural livelihoods can help align environmental goals with social outcomes.
Similarly, the priority sector lending mechanism, which is already an important tool for promoting financial inclusion, can be expanded to support projects in transitioning coal-dependent regions. It can also promote green entrepreneurship and provide funding for retraining initiatives and social protection programmes that strengthen community resilience during the energy transition.
The RBI’s move to recognise sovereign green bonds as eligible for the statutory liquidity ratio has increased their uptake. The next frontier is to issue targeted sovereign green bonds dedicated to just transition goals, ensuring that public financing is aligned with both environmental and social objectives.
Social risks from the energy transition like job losses or displacement are not yet fully integrated into India’s financial risk frameworks. The RBI can lead by recognising just transition as a financial risk category, conducting sector-specific impact studies; and building partnerships with financial, academic and civil society institutions. International collaboration through platforms like the Network for Greening the Financial System can also help the RBI adopt global best practices, learning from regions like South Africa, Europe and Latin America which are already embedding just transition principles into financial supervision.
Coordination is the missing link
Coordination between stakeholders emerged as a key gap during our consultations, limiting the kind of systemic response required for a successful just transition.
Both the RBI and Sebi can address this by partnering with National Bank for Agriculture and Rural Development and the Small Industries Development Bank of India to co-finance just transition-aligned initiatives, engaging with state-level task forces to incorporate local insights, and working with academic institutions to develop metrics and assessment tools.
A collaborative, whole-of-system approach bringing together regulators, financial institutions and public agencies is essential to build a financing ecosystem that supports workers, strengthens community resilience and drives equitable economic transformation.
India’s financial regulators have begun steering the ship towards a sustainable future. But as the transition gathers pace, it must carry everyone along. Sebi and the RBI have an opportunity to ensure that climate action is not only green but also just.
By embedding just transition principles into their mandates, disclosures, instruments and partnerships, these institutions can lay the groundwork for an inclusive, equitable and resilient future. In doing so, they will not only manage risk and mobilise capital but also help shape a new development paradigm that leaves no one behind.
This page was last updated September 3, 2025
Written by
Gaurav Upadhyay is energy finance specialist for south Asia at the Institute for Energy Economic and Financial Analysis. Previously, he worked as a climate and energy consultant at the World Bank, and has also worked at Unicef, Hewlett-Packard and GVK-EMRI.
Sangeeth Selvaraju is policy fellow at the Just Transition Finance Lab and the Grantham Research Institute at the London School of Economics. Previously, he worked in the climate policy department at the German Institute for Economic Research, at the Mercator Research Institute on Global Commons and Climate Change (MCC) and the Council on Energy, Environment and Water in New Delhi.
