Green Bonds in India

Introduction

Green bond is like every bond but there is only one difference between Normal Bonds and Green Bonds. The difference between a Normal Bonds and Green Bonds is that Green Bonds are earmarked towards the business and assets which are related to environmental friendly.[1] Green Bonds especially present in the projects which are related to the Areas of clean transportation, renewable energy and sustainable water management.[2]

Benefits of Green Bonds

The green bonds enhance reputation of issuers. It helps showcasing the commitment towards sustainable development.[3] It promotes the global investors of investing in Green Ventures. The investment towards the green development is increasing day by day at is attracting foreign investors and this is helping in reducing the cost of capital.

Starting of the Concept

The Green Bonds were launched by the few Development Banks such as the World Bank and European investment banks in the year of 2007.[4] In the year of 2013 the corporate thanks also started participating in the green bonds which led to the overall growth. Yes Bank became the very first bank to issue green bonds worth rupees 1000 crore in 2015. Following Yes Bank, many banks also started issuing green bonds. CLP India was the first company to start this up. So far the amount of rupees 7200 crore have been raised up via green bonds.[5]

Rules Under SEBI

The funds under which green bonds can be invested are related to Renewable and Sustainable Energy such as wind and Solar Sustainable Water Management, Clean Transportation, Climate Change Adaptation, Sustainable Waste Management, Energy Efficiency and Land Use and Biodiversity Conservation.[6]

Importance of Green Bonds in India

As we know that bonds helps in raising the money from investors. Therefore the green bonds also help in raising the money. When the bonds are mature the money is rapid. The Indian firms like Indian renewable energy Development Agency Limited and Greenko have issued bonds for financing the renewable energy. Exim bank of India issued a 5 year $500 million Green Bonds which is in India first dollar dominated Green Bond. These issues were subscribed nearly 3.2 times.[7]

Bonds as an Attractive Option

The analyst at Bloomberg new energy Finance, Shantanu Jaiswal stated that “Green bonds typically carry a lower interest rate than the loans offered by the commercial banks. Hence, when compared to other forms of debt, green bonds offer better returns for an independent power producers,”[8] whereas “Samuel Joseph, Chief General Manager, Treasury and Accounts Group, Exim Bank of India, says as these bonds are meant for specific investors looking to invest in renewable energy projects, pricing could be attractive”.[9] The green bonds at the bank price at 147.50 basis points over US treasuries at a fixed coupon of 2.75% per annum.[10] As per the reports of KPMG green bond “proceeds are raised for specific green projects, but repayment is tied to the issuer, not the success of the projects”.[11] The meaning of this statement is that the risk of project not performing will be staying with the issue or rather than investor.[12]

According to the Bloomberg new energy Finance there was a record of $38.8 billion in the green bonds which was issued in the year of 2014 which is 2.6 Times the $15 billion which was issued in the year of 2013.[13] “Most issuances of international green bonds have been oversubscribed suggesting a strong appetite for them especially when done by a strong issuer like a large corporate or a government agency,” the report says.[14]

Issues of these Bonds

Between the period of 2007 to 2012 European Investment Bank and the World Bank has accounted most of the Green Bond issue.[15] After that the corporate interest has grown up sharply. According to KPMG the bonds which are issued by corporations in the energy and utilities has risen up.[16] The downside is that green bonds in India have a shorter tenor period of about 10 years in India whereas a typical loan would be for minimum 13 years. This is less when compared to many international issuances”.[17] Also, he says, “Many target buyers of Indian green bonds may not invest in any bonds that are rated lower than the AAA.”[18]


References

[1] Sanjay Vijayakumar Sanjay Vijayakumar, Understanding green bonds and greener way of financing, http://www.thehindu.com/business/what-are-green-bonds/article7070840.ece.

[2] Reena Zachariah, 5 things to know about green bonds5 things to know about green bonds (2016), http://economictimes.indiatimes.com/wealth/invest/5-things-to-know-about-green-bonds/articleshow/50680956.cms (last visited Jun 25, 2017).

[3] Rana Kapoor, Looking towards a greener futureLooking towards a greener future (2017), http://www.thehindu.com/opinion/op-ed/Looking-towards-a-greener-future/article17009199.ece (last visited Jun 25, 2017).

[4] Reena Zachariah, 5 things to know about green bonds (2016), http://economictimes.indiatimes.com/wealth/invest/5-things-to-know-about-green-bonds/articleshow/50680956.cms (last visited Jun 25, 2017).

[5] Yes Bank wins inaugural Green Bond Award in UK , , https://currentaffairs.gktoday.in/tags/green-bond (last visited Jun 25, 2017).

[6] PTI, Green bonds can potentially fund renewable energy: Report (2016), http://indianexpress.com/article/india/india-news-india/green-bonds-can-potentially-fund-renewable-energy-report-4377046/ (last visited Jun 25, 2017).

[7] Koyel Kumar Mandal, Why Green Bonds Are Key For Achieving India’s Climate Targets (2017), http://www.huffingtonpost.in/koyel-kumar-mandal/why-green-bonds-are-key-for-achieving-indias-climate-targets_a_21903854/ (last visited Jun 25, 2017).

[8] Greening India’s Financial Market: How Green Bonds Can Drive Clean Energy Deployment, Greening India’s Financial Market: How Green Bonds Can Drive Clean Energy Deployment, https://www.nrdc.org/sites/default/files/india-financial-market-green-bonds-report.pdf (last visited Jun 25, 2017).

[9] Id.

[10] Koyel Kumar Mandal, Why Green Bonds Are Key For Achieving India’s Climate Targets (2017), http://www.huffingtonpost.in/koyel-kumar-mandal/why-green-bonds-are-key-for-achieving-indias-climate-targets_a_21903854/ (last visited Jun 25, 2017).

[11] Bonds and Climate Change 2016: India Edition, , https://www.climatebonds.net/bonds-and-climate-change-2016-india-edition (last visited Jun 25, 2017).

[12] Id.

[13] Green Bonds, Green Initiatives, https://www.eximbankindia.in/green-initiatives (last visited Jun 25, 2017).

[14] Id.

[15] Tojo Jose, What is Green Bond? (2016), http://www.indianeconomy.net/splclassroom/238/what-is-green-bond/ (last visited Jun 25, 2017).

[16] Koyel Kumar Mandal, Why Green Bonds Are Key For Achieving India’s Climate Targets (2017), http://www.huffingtonpost.in/koyel-kumar-mandal/why-green-bonds-are-key-for-achieving-indias-climate-targets_a_21903854/ (last visited Jun 25, 2017).

[17] Green Bonds – Advantages and Risks, , http://www.careerride.com/view/green-bonds-advantages-and-risks-20785.aspx (last visited Jun 25, 2017).

[18] Sean Kidney, Mumbai: India Green Bonds Council Holds First Meeting: New Group Convened by FICCI and Climate Bonds to Drive Market Development (2016), https://www.climatebonds.net/2016/10/mumbai-india-green-bonds-council-holds-first-meeting-new-group-convened-ficci-and-climate (last visited Jun 25, 2017).

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