More than 90 percent of India’s green bonds market is dedicated to renewable energy generation.
Bengaluru, January 25, 2023: India saw record issuance of green bonds in 2021, worth 7 billion dollars, a report by KPMG, a business advisory firm shows. It also says the majority of the bonds are used in the renewable generation sector, rendering other sectors such as mobility, water and buildings craving for funds.
Visvesh Sridharan, lead ESG analyst at ERM said generally green bonds are expected to give a lower rate of interest. “Once a green bonds project is verified, it increases the transparency around the project as several checks are done to get environmental clearance for a project. It clearly establishes where the capital is going and in a way, it eliminates risk to a certain extent. If there is a lower risk then the return on investment is also expected to be lower,” said Visvesh.
India issued the country’s first sovereign green bonds worth Rs 8,000 crore on January 25. The 10-year worth bonds were auctioned with a yield of 7.29 percent and 5 year bonds settled at 7.20 percent, said Reserve Bank of India in a press release. Overall, the government plans to issue Rs 16,000 crore worth of green bonds. The next tranche of Rs 8,000 crore worth of securities is scheduled to be auctioned on February 9.
Yes Bank, in 2015, issued India’s first green bonds worth 500 crore rupees to finance renewable energy projects such as solar and wind projects.
“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. The government also expects the same,” said Venkatkrishnan Srinivasan, a financial market expert and founder of Rockfort Fincap Limited Liability Partnership (LLP).
He said that 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. It is because in India, domestic investors don’t differentiate between normal bonds 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, indicated the same report.
Visvesh said, unlike many countries, India doesn’t offer tax incentives for investing in green bonds.
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.