Green bonds are a type of debt instrument that are issued to raise funds for projects that have positive environmental and/or climate benefits. These projects can include renewable energy, energy efficiency, clean transportation, sustainable water management, waste management, green buildings, and biodiversity conservation. Green bonds are usually backed by the issuer’s balance sheet and carry the same credit rating as their other bonds.
Green bonds are not a new concept, but they have gained popularity in recent years as a way to mobilize capital for green projects and to support the global efforts to combat climate change. According to the Climate Bonds Initiative, a non-profit organization that promotes green bond standards and markets, the global green bond issuance reached a record high of $269.5 billion in 2020, up from $266.8 billion in 2019. The top five issuers in 2020 were China, the US, Germany, France, and the Netherlands
India is also an active player in the green bond market, having issued its first green bond in 2015 by Yes Bank, a private sector bank. Since then, India has issued more than $10 billion worth of green bonds, making it the second-largest emerging market issuer after China. The major issuers in India include public sector entities such as Indian Renewable Energy Development Agency (IREDA), Power Finance Corporation (PFC), and Rural Electrification Corporation (REC), as well as private sector entities such as Greenko, ReNew Power, and Adani Green Energy. The main sectors that have received green bond financing in India are renewable energy, green buildings, and low-carbon transport
Green bonds are important for India for several reasons. First, green bonds can help India achieve its ambitious targets of installing 175 gigawatts (GW) of renewable energy capacity by 2022 and 450 GW by 2030, as well as reducing its greenhouse gas emissions intensity by 33-35% by 2030 from the 2005 level. These targets are part of India’s commitments under the Paris Agreement on climate change, which aims to limit the global temperature rise to well below 2 degrees Celsius above pre-industrial levels. To meet these targets, India needs an estimated $2.5 trillion of investment in green projects by 2030
Second, green bonds can help India diversify its sources of funding and reduce its dependence on conventional bank loans, which are often costly and scarce. Green bonds can attract new investors, both domestic and foreign, who are looking for sustainable and responsible investment opportunities. Green bonds can also offer tax incentives, such as tax exemption and tax credits, to make them more attractive to investors. Moreover, green bonds can enhance the reputation and credibility of the issuers, as they demonstrate their commitment to environmental and social goals.
Third, green bonds can help India create a green economy that is resilient, inclusive, and competitive. Green bonds can support the development of green industries, such as renewable energy, green buildings, and electric vehicles, that can create jobs, reduce pollution, and improve public health. Green bonds can also foster innovation and technology transfer, as they can finance the research and development of new and improved green solutions. Furthermore, green bonds can promote the adoption of green standards and practices, as they require the issuers to follow certain principles and guidelines for project selection, evaluation, reporting, and verification.
In conclusion, green bonds are a valuable tool for financing green projects and supporting green growth in India. Green bonds can help India meet its climate and environmental targets, diversify its funding sources, and create a green economy. However, green bonds also face some challenges, such as the lack of a clear and consistent definition, the need for more transparency and disclosure, and the risk of greenwashing. Therefore, India needs to strengthen its green bond framework and market, and to collaborate with other stakeholders, such as regulators, rating agencies, auditors, and investors, to ensure the quality and credibility of green bonds.