ENVIRONMENTAL LAW, CLIMATE CHANGE & GREEN FINANCE

About the Author

Basil P. Thankaraj is an Advocate enrolled under the Kerala Bar Council, holding a BBA, LL.B and currently pursuing an LL.M in Corporate and Commercial Law. He practices in civil, criminal, consumer, and other major areas of law, with a keen interest in litigation and legal research. His professional interests also include mediation, arbitration, negotiation, and other forms of Alternative Dispute Resolution (ADR), alongside corporate and commercial law.

INTRODUCTION

Climate change and environmental degradation have emerged as critical challenges confronting humanity in the twenty-first century. Rapid industrialisation, urban expansion, and unsustainable consumption of natural resources have significantly increased greenhouse gas emissions, resulting in rising global temperatures and extreme climatic events. These environmental changes threaten ecosystems, economic stability, and human health across the world.¹

Environmental law has evolved as a vital mechanism for regulating human activities that adversely affect the natural environment. Through national legislation, international treaties, and judicial interpretation, environmental law seeks to balance economic development with ecological protection. Courts have increasingly interpreted constitutional rights to include environmental protection, thereby strengthening environmental governance.²

However, addressing climate change requires not only regulatory mechanisms but also significant financial resources. The transition toward a low – carbon and sustainable economy requires massive investments in renewable energy, sustainable infrastructure, and climate – resilient technologies. In this context, green finance has emerged as an important instrument for mobilising financial resources to address environmental challenges.³

Green finance integrates environmental considerations into financial decision-making and encourages investments in projects that promote sustainability. By directing capital toward environmentally beneficial activities, green finance plays a crucial role in supporting global climate objectives and sustainable development goals.

ENVIRONMENTAL LAW AND CLIMATE CHANGE GOVERNANCE

Environmental law forms the foundation of global efforts to combat environmental degradation and climate change. Governments enact environmental regulations to control pollution, conserve biodiversity, and promote sustainable development. These laws establish standards for environmental protection and impose liabilities on individuals and corporations responsible for environmental harm.⁴

In India, environmental protection has gained constitutional recognition through judicial interpretation. Article 21 of the Constitution guarantees the right to life and personal liberty, which has been interpreted by the judiciary to include the right to a clean and healthy environment. In Subhash Kumar v. State of Bihar,⁵ the Supreme Court affirmed that the right to life includes the right to enjoy pollution-free water and air.

Another landmark decision, Vellore Citizens Welfare Forum v. Union of India,⁶ introduced the precautionary principle and polluter pays principle into Indian environmental jurisprudence. These principles emphasise the responsibility of governments and industries to prevent environmental damage and compensate affected communities.

Through judicial activism and legislative initiatives, environmental law continues to play a crucial role in strengthening climate governance and environmental protection.

CONCEPT AND EVOLUTION OF GREEN FINANCE

Green finance refers to financial investments that support environmentally sustainable projects and promote ecological protection. It includes financial instruments such as green bonds, climate funds, carbon trading mechanisms, and sustainable investment strategies. These instruments encourage investments in renewable energy, energy efficiency, sustainable agriculture, and environmental conservation.⁷

The concept of green finance emerged from the growing recognition that environmental sustainability requires substantial financial support. According to international reports, trillions of dollars in investment are required annually to transition to a low-carbon global economy and meet international climate targets.⁸

Financial institutions have increasingly incorporated Environmental, Social and Governance (ESG) criteria into their investment decisions. ESG-based investment strategies aim to promote responsible corporate behaviour while generating long-term economic returns.

The evolution of green finance reflects a broader transformation in global economic thinking, where sustainability is considered an integral component of economic growth rather than a constraint on development.

INTERNATIONAL LEGAL FRAMEWORKS FOR CLIMATE FINANCE

International legal frameworks play a crucial role in guiding global efforts to address climate change and promote sustainable development. Climate change is a transboundary issue that cannot be effectively addressed by individual states acting alone. Consequently, international cooperation through treaties, agreements, and institutional mechanisms has become essential in creating a coordinated global response. These frameworks establish obligations for states, promote environmental accountability, and facilitate financial and technological support for developing countries. Climate finance has emerged as a key element of these global frameworks because many developing nations lack sufficient resources to implement mitigation and adaptation strategies. International legal instruments, therefore, seek to mobilise financial flows, encourage sustainable investments, and strengthen institutional mechanisms for environmental governance. Through agreements such as the UNFCCC and the Paris Agreement, the international community has recognised the importance of integrating environmental protection with economic development. These frameworks not only establish environmental targets but also create mechanisms that support the transition toward low-carbon economies, thereby ensuring that climate action remains both inclusive and sustainable.

1. United Nations Climate Framework

The United Nations Framework Convention on Climate Change (UNFCCC) represents the primary international treaty addressing climate change. The Convention established a framework for international cooperation aimed at stabilising greenhouse gas concentrations in the atmosphere.⁹ The adoption of the UNFCCC marked a significant step in global environmental governance because it formally recognised climate change as a matter requiring collective international action. The Convention encourages countries to develop national policies and measures that reduce greenhouse gas emissions while promoting sustainable development.

One of the most important principles recognised under the UNFCCC is the principle of common but differentiated responsibilities (CBDR). This principle acknowledges that developed countries have historically contributed more to global greenhouse gas emissions due to early industrialisation. As a result, they bear a greater responsibility in addressing climate change and are expected to provide financial assistance and technological support to developing countries. The Convention also promotes the sharing of scientific knowledge, capacity building, and cooperation in climate research. By establishing institutional mechanisms such as the Conference of the Parties (COP), the UNFCCC continues to serve as the central platform for international negotiations on climate policy and climate finance.

2. Paris Agreement and Global Climate Commitments

The Paris Agreement marked a significant milestone in international climate governance by establishing a comprehensive framework for global climate action. Adopted in 2015, the agreement aims to limit the increase in global temperature to well below two degrees Celsius above pre-industrial levels while pursuing efforts to limit the temperature rise to 1.5 degrees Celsius.¹⁰ This agreement represents a shift from earlier climate treaties because it relies on a more flexible and participatory system in which each country determines its own climate commitments.

Under the Paris Agreement, countries are required to submit Nationally Determined Contributions (NDCs) that outline their plans for reducing greenhouse gas emissions and adapting to climate impacts. These commitments are periodically reviewed and strengthened to ensure progressive improvement in climate action. Climate finance is a central component of the agreement, particularly for developing countries that require financial and technological support to implement their climate strategies. Developed nations have committed to mobilising substantial financial resources to assist developing states in achieving their mitigation and adaptation goals. The Paris Agreement, therefore, reinforces the link between environmental governance and financial mechanisms, highlighting the importance of global cooperation in addressing climate change.

3. Role of International Financial Institutions

International financial institutions play a vital role in mobilising climate finance and supporting sustainable development initiatives across the globe. Organisations such as the World Bank, the International Monetary Fund, and various regional development banks have increasingly integrated environmental sustainability into their financial strategies. These institutions provide financial assistance, technical expertise, and policy guidance to help countries transition toward low-carbon economies.

Through climate funds and development programs, international financial institutions support projects related to renewable energy, sustainable transportation, climate-resilient infrastructure, and environmental conservation. Such investments not only contribute to reducing greenhouse gas emissions but also enhance economic growth and social development. In addition, these institutions often collaborate with private sector investors to mobilise large-scale financing for green projects. By promoting innovative financial instruments such as green bonds and climate investment funds, international financial institutions help bridge the gap between environmental objectives and economic development. Their role is therefore essential in strengthening global climate governance and ensuring that financial resources are directed toward sustainable and environmentally responsible initiatives.

JUDICIAL RESPONSES TO ENVIRONMENTAL PROTECTION AND CLIMATE GOVERNANCE

The judiciary has emerged as a powerful actor in the field of environmental governance and climate protection. Courts across the world increasingly recognise that environmental degradation and climate change have direct implications for fundamental rights such as the right to life, health, and livelihood. As a result, judicial institutions have begun to interpret constitutional provisions and statutory laws in ways that strengthen environmental protection.

Through landmark judgments, courts have developed important legal principles such as the precautionary principle, the polluter pays principle, and the doctrine of sustainable development. Judicial intervention has also played a crucial role in ensuring that governments and corporations comply with environmental regulations. In many countries, environmental litigation has become an important tool for citizens, civil society organisations, and activists seeking accountability for environmental harm. By reviewing governmental policies, enforcing environmental laws, and interpreting constitutional rights, the judiciary contributes significantly to climate governance. These judicial developments demonstrate how courts can function as guardians of environmental justice while promoting sustainable development.

1. Judicial Activism in Environmental Protection in India

Indian courts have played a significant role in strengthening environmental protection through public interest litigation. Over the past few decades, the judiciary has expanded the scope of constitutional rights to include environmental protection and sustainable development. In M.C. Mehta v. Union of India,¹¹ the Supreme Court established the doctrine of absolute liability for industries engaged in hazardous activities. This doctrine ensures that industries responsible for environmental damage cannot escape liability by claiming the absence of negligence.

Similarly, in Indian Council for Enviro-Legal Action v. Union of India,¹² the Court held industries accountable for environmental pollution and ordered them to compensate affected communities. These decisions reflect the proactive approach adopted by Indian courts in addressing environmental issues. Through such landmark judgments, the judiciary has reinforced the importance of environmental accountability and strengthened the enforcement of environmental laws. Judicial activism in India has therefore played a crucial role in protecting natural resources, safeguarding public health, and promoting environmental justice.

2. Global Climate Litigation

Climate litigation has emerged as an important tool for holding governments and corporations accountable for their climate policies and environmental responsibilities. In recent years, courts around the world have been increasingly approached by individuals, civil society groups, and environmental organisations seeking judicial intervention in climate matters. These cases often challenge governmental inaction, inadequate climate policies, or corporate practices that contribute to environmental harm.

In Massachusetts v. Environmental Protection Agency,¹³ the United States Supreme Court recognised greenhouse gases as pollutants subject to regulation under federal environmental law. This decision significantly expanded the authority of regulatory agencies to address climate change through environmental regulations. Similarly, in Urgenda Foundation v. State of the Netherlands,¹⁴ the Dutch Supreme Court held that the government had a legal obligation to reduce greenhouse gas emissions to protect citizens from the harmful impacts of climate change. These cases demonstrate the growing importance of climate litigation in strengthening environmental governance and ensuring that governments fulfil their climate commitments.

3. Role of Environmental Tribunals and Courts

Specialised environmental courts and tribunals have been established in several countries to handle environmental disputes efficiently and effectively. These institutions are designed to provide expert adjudication in complex environmental matters that often involve scientific and technical considerations. By focusing exclusively on environmental issues, such tribunals can deliver more informed and timely decisions compared to traditional courts.

In India, the establishment of the National Green Tribunal (NGT) marked a significant development in environmental governance. The NGT was created to ensure the speedy and effective disposal of cases related to environmental protection, forest conservation, and pollution control. The tribunal has the authority to award compensation, impose penalties, and enforce environmental regulations. By providing an accessible forum for environmental justice, institutions like the NGT strengthen the enforcement of environmental laws and contribute to sustainable development. These specialised judicial bodies therefore play an important role in enhancing environmental accountability and protecting ecological interests.

CHALLENGES AND OPPORTUNITIES IN GREEN FINANCE

Green finance has gained increasing attention as a powerful tool for promoting environmentally sustainable development. By directing financial investments toward environmentally beneficial projects, green finance helps support renewable energy, energy efficiency, and climate-resilient infrastructure. However, despite its growing importance, the implementation of green finance mechanisms faces several challenges at both national and international levels.

Financial markets often lack uniform standards for defining and regulating green investments, which can create uncertainty for investors and policymakers. Moreover, the rapid expansion of green financial products has raised concerns regarding transparency, accountability, and the credibility of sustainability claims. Addressing these challenges requires stronger regulatory frameworks, improved financial transparency, and greater international cooperation. At the same time, green finance presents significant opportunities for promoting sustainable economic growth and environmental protection. By encouraging responsible investment practices and fostering innovation in financial markets, green finance can play a crucial role in accelerating the global transition toward a low-carbon economy.

1. Regulatory and Institutional Challenges

Despite its potential, green finance faces several regulatory and institutional challenges that hinder its effective implementation. One of the primary issues is the absence of universally accepted definitions and standards for green financial products. Different countries and institutions often adopt varying criteria for classifying investments as environmentally sustainable. This lack of consistency creates confusion among investors and may reduce confidence in green financial markets.

In addition, many developing countries lack the institutional capacity and regulatory frameworks necessary to support green finance initiatives. Limited financial infrastructure, insufficient policy coordination, and weak regulatory oversight can restrict the growth of sustainable investment markets. Addressing these challenges requires stronger international cooperation and the development of harmonised regulatory standards. Governments must also strengthen institutional mechanisms and promote capacity-building initiatives to ensure that green finance contributes effectively to environmental sustainability.

2. Risk of Greenwashing and Market Barriers

Another major challenge associated with green finance is the growing risk of greenwashing. Greenwashing occurs when companies or financial institutions falsely claim that their products, investments, or policies are environmentally friendly to attract investors and improve their public image. Such misleading practices undermine the credibility of green finance initiatives and may divert financial resources away from genuinely sustainable projects.

Market barriers also pose significant obstacles to the expansion of green finance. Many environmentally sustainable projects involve high initial costs and long investment horizons, which may discourage private investors seeking short-term returns. In addition, limited awareness and a lack of reliable environmental data can further complicate investment decisions. To address these challenges, governments and regulatory bodies must establish clear disclosure standards and monitoring mechanisms that ensure transparency in green financial markets.

3. Emerging Opportunities for Sustainable Development

Despite these challenges, green finance offers significant opportunities for promoting sustainable development and environmental protection. Investments in renewable energy technologies such as solar, wind, and hydropower can help reduce dependence on fossil fuels while generating long-term economic benefits. Similarly, sustainable infrastructure projects and climate-resilient agricultural practices can improve environmental sustainability while supporting economic growth.

Green finance also encourages innovation in financial markets through instruments such as green bonds, climate funds, and sustainable investment portfolios. These financial tools enable governments and private investors to channel resources into projects that contribute to environmental protection and climate mitigation. As global awareness of climate change continues to grow, the demand for sustainable investments is expected to increase significantly. Governments, financial institutions, and international organisations must therefore collaborate to strengthen regulatory frameworks, promote transparency, and encourage innovation in green financial products. By doing so, green finance can become a powerful driver of sustainable economic development and environmental resilience.

CONCLUSION

Climate change represents one of the most significant and complex challenges facing the global community in the modern era. The accelerating pace of environmental degradation, rising global temperatures, loss of biodiversity, and increasing frequency of extreme weather events demonstrate the urgent need for effective and coordinated responses. These environmental challenges not only threaten ecosystems but also have serious implications for human health, economic stability, food security, and sustainable development. As a result, addressing climate change requires collective action that involves governments, international organisations, financial institutions, corporations, and civil society.

Environmental law plays a fundamental role in establishing the legal framework necessary for protecting natural resources and ensuring environmental accountability. Through international agreements, national legislation, and judicial interpretation, environmental law regulates activities that may harm the environment and promotes the principles of sustainable development. Courts around the world have increasingly recognised environmental protection as an essential component of fundamental human rights, thereby strengthening environmental governance and ensuring that both governments and private actors are held accountable for environmental damage. Legal principles such as the precautionary principle, polluter pays principle, and the doctrine of sustainable development have become essential tools for balancing economic growth with environmental protection.

At the same time, legal regulation alone cannot fully address the scale and urgency of climate change. The transition toward a low-carbon and climate-resilient economy requires substantial financial resources to support renewable energy development, sustainable infrastructure, technological innovation, and climate adaptation strategies. In this context, green finance has emerged as a crucial mechanism for mobilising financial resources toward environmentally sustainable activities. By integrating environmental considerations into financial decision-making, green finance encourages responsible investment practices and promotes projects that contribute to climate mitigation and environmental conservation. The integration of environmental law and green finance, therefore, represents a comprehensive approach to addressing climate change. Legal frameworks provide the regulatory foundation necessary for environmental protection, while financial mechanisms ensure that adequate resources are available to implement sustainable development initiatives. Together, these two approaches can create a more effective system for addressing environmental challenges and promoting long- term sustainability.

Looking ahead, strengthening international cooperation, improving regulatory transparency, and expanding sustainable investment opportunities will be essential for achieving global climate goals. Governments must continue to develop strong environmental policies, while financial institutions should promote innovative financial instruments that support environmentally responsible projects. Greater collaboration between public and private sectors will also be necessary to ensure that climate finance is effectively directed toward sustainable development initiatives. Ultimately, achieving a climate-resilient and environmentally sustainable future requires a balanced combination of legal enforcement, financial innovation, and global cooperation. By aligning environmental law with green finance strategies, the international community can move closer toward building a sustainable future that protects both the environment and the well-being of present and future generations.

BIBLIOGRAPHY

Books

• Philippe Sands & Jacqueline Peel, Principles of International Environmental Law (4th ed., Cambridge University Press 2018).
• Daniel Bodansky, Jutta Brunnée & Lavanya Rajamani, International Climate Change Law (Oxford University Press 2017).
• Michael B. Gerrard & Tracy Hester, Climate Change Law (American Bar Association 2018).

Journal Articles

• Ulrich Volz, Fostering Green Finance for Sustainable Development, Asian Development Bank Institute Working Paper Series (2018).
• Nick Robins, Green Finance and the Role of Financial Institutions in Climate Governance, Journal of Sustainable Finance & Investment (2017).
• Rob Bauer, Timo Busch & Daniel Otten, Sustainable Investing and Climate Finance, Journal of Business Ethics (2016).

International Treaties and Reports

• United Nations Framework Convention on Climate Change, May 9, 1992, 1771 U.N.T.S. 107.
• Paris Agreement, Dec. 12, 2015, T.I.A.S. No. 16-1104.
• Intergovernmental Panel on Climate Change, Climate Change 2021: Sixth Assessment Report (2021).
• United Nations Environment Programme, Global Environment Outlook Report (2019).
• World Bank, Climate Change Action Plan 2021–2025.

Case Laws

• Vellore Citizens Welfare Forum v. Union of India, (1996) 5 S.C.C. 647 (India).
• M.C. Mehta v. Union of India, (1987) 1 S.C.C. 395 (India).
• Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 S.C.C. 212 (India).
• Subhash Kumar v. State of Bihar, (1991) 1 S.C.C. 598 (India).
• Rural Litigation and Entitlement Kendra v. State of Uttar Pradesh, A.I.R. 1985 S.C. 652 (India).
• T.N. Godavarman Thirumulpad v. Union of India, (1997) 2 S.C.C. 267 (India).
• Massachusetts v. Environmental Protection Agency, 549 U.S. 497 (2007).
• Urgenda Foundation v. State of the Netherlands, ECLI:NL:HR:2019:2007 (Neth.).

FOOTNOTES

1. Intergovernmental Panel on Climate Change, Climate Change 2021: The Physical Science Basis (2021). ↩︎
2. Philippe Sands & Jacqueline Peel, Principles of International Environmental Law (4th ed. 2018). ↩︎
3. United Nations Environment Programme, Green Finance Progress Report (2019). ↩︎
4. United Nations Framework Convention on Climate Change, May 9, 1992, 1771 U.N.T.S. 107. ↩︎
5. Subhash Kumar v. State of Bihar, (1991) 1 SCC 598 (India). ↩︎
6. Vellore Citizens Welfare Forum v. Union of India, (1996) 5 SCC 647 (India). ↩︎
7. OECD, Green Finance and Investment Report (2020). ↩︎
8. World Bank, Climate Finance Overview (2021). ↩︎
9. United Nations Framework Convention on Climate Change, supra note 4. ↩︎
10. Paris Agreement, Dec. 12, 2015, T.I.A.S. No. 16-1104. ↩︎
11. M.C. Mehta v. Union of India, (1987) 1 SCC 395. ↩︎
12. Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 SCC 212. ↩︎
13. Massachusetts v. Environmental Protection Agency, 549 U.S. 497 (2007). ↩︎
14. Urgenda Foundation v. State of Netherlands, HR 20 Dec. 2019, ECLI:NL:HR:2019:2007. ↩︎