Allegations that the Indian conglomerate Adani Group dedicated “accounting fraud, stock manipulation, and money laundering” rattled markets and political observers when activist investor group Hindenburg Research made them final week. Indian shares tumbled and analysts questioned how the affair would have an effect on the political prospects of the present Indian authorities.

The disaster made me consider my time in India in December. Given the nation’s quickly rising inhabitants, economic system, and emissions, I had traveled there to study how the country is managing the energy transition. And what I heard again and again from authorities and trade leaders is that the nation is hoping that an infusion of personal funding will make its transition attainable. The argument was easy: personal financiers might help the nation’s efforts to decarbonize whereas creating wealth.

The Adani disaster is sure to have an effect on how overseas traders see the nation and, by extension, how keen they’re to supply capital for the transition. On the one hand, if the allegations are discovered to be true, or if the Indian authorities doesn’t examine them, traders would possibly change into skeptical about placing cash into India’s power transition. On the opposite, an intensive investigation or debunking of the claims would seemingly engender confidence.

Read extra: How India Became the Most Important Country in the Climate Fight

Understanding what the Adani disaster might imply for green-energy funding in India is much less about grappling with Adani’s environmental monitor file than it’s about contemplating the present international local weather finance image. The International Energy Agency estimates that rising and growing international locations will want greater than $1 trillion of annual funding in clear power by the top of this decade to align with international local weather objectives. India alone will want $1.4 trillion by 2040. Governments will present a few of that cash. Indeed, the Indian authorities announced on Wednesday greater than $4 billion in inexperienced spending as a part of its annual funds. But local weather finance consultants say the personal sector will likely be wanted to get from billions to trillions of {dollars}.

One of the largest challenges for international locations like India is the perceived threat that investments might not generate the promised return—each due to an entrenched paperwork that may make it difficult to do enterprise and in addition due to potential corruption and mismanagement points. For instance, till not too long ago, it was a typical follow for states to renege on their commitments to pay energy firms. Because of those dangers, financiers count on the next return on investments in India than they could in different elements of the world. A 2021 report from the International Energy Agency discovered that the common price of capital—a finance time period for the mandatory return to make a challenge value investing in—to be greater than twice as excessive for photo voltaic tasks in India than within the U.S and Europe.

The Adani disaster will solely elevate these considerations for traders in hubs like New York and London. In the wake of the announcement, the Wall Street Journal reported that the “Adani Group Saga Is Credibility Test for India’s Markets, Institutions” whereas the Financial Times said the “Adani affair is a test for India Inc.” Indeed, the NIFTY 50 index of Indian shares declined to its lowest degree since October within the wake of the disaster—defying optimistic investor sentiment over the identical time interval in different international locations.

To maintain the concern from spreading, traders are calling for a sturdy authorities investigation of Adani to sign that potential fraud and mismanagement is being taken significantly. That will assist preserve investor confidence in India—and in addition assist the worldwide efforts to sort out local weather change.

A model of this story additionally seems within the Climate is Everything publication. To enroll, click here.

Write to Justin Worland at justin.worland@time.com.