More than 90 percent of India’s green bonds market is dedicated to renewable energy generation
India saw a record issuance of green bonds worth $ seven billion in 2021, a report by business advisory KPMG shows. It also shows that the majority of the bonds were used in the renewable generation sector, -leaving other sectors such as mobility, water and buildings, short of funds.
Visvesh Sridharan, lead environmental, social and governance analyst at consulting firm Environmental Resources Management (ERM) said generally green bonds are expected to give a lower rate of interest. “Once a green bonds project is verified, it increases transparency as several checks are done to get an environmental clearance for a project. It clearly establishes where the capital is being used andeliminates risk to a certain extent. If there is a lower risk, then the return of investment is also expected to be lower,” said Visvesh.
India issued the country’s first sovereign green bonds worth Rs 8,000 crore on Jan. 25. The 10-year worth bonds were auctioned with a yield of 7.29 percent and five-year bonds settled at 7.20 percent, said Reserve Bank of India (RBI) in a press release. Overall, the government plans to issue green bonds worth Rs. 16,000 crore. The next portion of Rs 8,000 crore worth securities is scheduled to be auctioned on Feb. 9.
In 2015, Yes Bank issued India’s first green bonds worth 500 crore, to finance renewable energy projects such as solar, wind, etc.
“The government’s initiative is appreciable. Anyone who issues green bonds would want to see a substantial premium, that is, ‘greenium’ over a normal bond. Government also expects the same,” said Venkatkrishnan Srinivasan, the founder of Rockfort Fincap Limited Liability Partnership (LLP) and a finance market expert.
He said even though there is an increase in interest for green bonds, certain systematic changes are needed. “In India, till now, private companies have issued green bonds but the problem is that private companies don’t explicitly mention that it is a green bond. This is because in India, domestic investors do not differentiate between normal and green bonds in terms of pricing,” said Srinivasan.
Poland, in 2016, became the first country to issue sovereign green bonds. Following this, the country saw a rapid increase in green investors. They formed over 60 percent of the total investors in the country, the KPMG report shows.
Visvesh said India doesn’t offer tax incentive for investing in green bonds unlike many countries. This keeps investors away.
The global green bond market was valued at $ 3.5 trillion as of Sept. 2022. One of the major factors driving this growth is the increasing awareness of the need to transition to a low-carbon economy, said Visvesh.