fb

Green Bonds

What are Green Bonds?

  • A green bond is a debt instrument designed specifically to support specific climate-related or environmental projects.

  • They are used to finance projects aimed at sustainable agriculture, pollution prevention, fishery and forestry, clean water and transportation , environment friendly water management projects

Who issues these Bonds?

  • Companies who wish to raise the money from Green projects .

  • Interesting Fact : The first official Green Bond was issued in the year 2009 by World Bank

Features of Green Bonds

  • In order to enhance the attractiveness of Green Bonds , they usually come with tax incentives

Highlights of Green Bonds

Reserve Bank of India (RBI) has published a study which states that the cost of issuing ‘Green Bonds’ remained on a higher side as compared to the rest of the bonds in India due to the asymmetric information.

    • The study states that the Green Bonds comprises only 0.7% of all the bonds issued in India since 2018.

    • As of March 2020, bank lending to renewable energy comprised 7.9% of the balance band credit to the power sector.

    • In India, the public sector units or corporates issue most of these bonds which indicate better financial health.

    • The Green Bonds have higher coupon rates as compared to the corporate government bonds with identical tenure.

    • Asymmetric information or information failure along with a high coupon rate are the major governing factors behind high borrowing costs.

    • A sound information dissemination system is actually in need of these times as it could help in minimising the maturity mismatches, borrowing costs and as a result may cause efficient resource allocation.

Benefits of Green Bonds

  • Green Bonds improves the issuer's reputation and highlights its dedication to sustainable development.

  • They usually have a lower interest rate as compared to the loans offered by the commercial banks.

  • Foreign Investors are aiming more on green Investments which, as a result, may help in minimizing the cost of raising capital.

  • They have been significant in raising finance to sunrise sectors such as renewable energy, which can contribute to their sustainable growth.

India and the Green Bond Market:

  • In 2018, the State Bank of India (SBI) ventured into the Green Bond market with a $650 million certified climate bond.

  • In the first half-year of 2019, India became the second-largest Green Bond market worldwide after China with $10.3 billion worth of transactions, according to the Economic Survey 2019-20.

  • In October 2019, India entered the International Platform on Sustainable Finance (IPSF) for increasing its environment-friendly Investments.

Challenges associated with Green Bonds:

  • The projects focused on by green bond issuers are questionable. It has been observed that most of the times the green bonds proceeds are being mobilized to finance projects that hurt the environment.

  • There's a paucity of credit ratings or rating guidelines for Green projects or Green Bonds.

  • Green Bonds in India are of 10 years duration while the typical loan is of minimum 13 years. Moreover, green projects need maximum time to propel returns.

Top Issuers
hdfc

Ghaziabad Municipal
Corporation

bondsindia

Yes Bank

bondsindia

State Bank of India

bondsindia

JSW Hydro Energy

bondsindia

Renew Power

bondsindia

Indian Railway Finance
Corporation

See More

Request a Call Back

Request in Process

Please enter the OTP sent to the mobile number with reference number

Didn’t recieve OTP? Resend Again

Request in Process

bondsindia

You will get a call back
within the next 2 minutes

Call Initiated

Select your time

Select the time slot as per
your preference

We will get back to you

tax