Green Bond Initiatives

Green Bonds are financial instruments designed to raise funds for projects that have positive environmental or climate benefits. They are part of a broader category known as sustainable finance, aimed at promoting investments in renewable energy, energy efficiency, sustainable transportation, water management, and climate change mitigation. In India, green bond initiatives have emerged as a significant step towards achieving the country’s commitments under the Paris Agreement (2015) and the Sustainable Development Goals (SDGs), particularly in transitioning towards a low-carbon economy.

Background and Concept

The concept of green bonds originated globally with the World Bank’s first green bond issuance in 2008, designed to fund climate-friendly projects. India entered the green bond market in 2015, when the Yes Bank issued the country’s first-ever green bond to finance renewable energy projects. This marked the beginning of an expanding sustainable finance market aligned with India’s National Action Plan on Climate Change (NAPCC) and other policy frameworks.
Green bonds function similarly to traditional bonds but differ in their use of proceeds, which must be exclusively allocated to environmentally sustainable projects. The issuer must also provide transparency through periodic reporting and third-party verification of project outcomes.

Objectives of Green Bond Initiatives

The principal objectives of green bond initiatives in India are:

• To mobilise capital for green and climate-resilient infrastructure.
• To support renewable energy capacity expansion, particularly in solar, wind, and hydro sectors.
• To encourage corporate and governmental commitment towards sustainable development.
• To diversify funding sources for environmental projects beyond traditional public finance.
• To enhance India’s global reputation as a responsible and sustainable economy.

Evolution of Green Bond Market in India

The development of the green bond market in India has been driven by both public and private sector participation, supported by a regulatory framework established by the Securities and Exchange Board of India (SEBI).

• 2015 – First Green Bond Issuance: Yes Bank raised ₹1,000 crore to fund renewable energy projects.
• 2016 – Regulatory Guidelines: SEBI issued the Disclosure Requirements for Issuance and Listing of Green Debt Securities, providing clarity on eligible projects, reporting, and verification.
• 2017–2019 – Market Expansion: Several institutions such as NTPC Limited, Indian Renewable Energy Development Agency (IREDA), and Power Finance Corporation (PFC) issued green bonds to finance large-scale renewable projects.
• 2020 onwards – Sovereign Engagement: The Government of India announced its intention to issue Sovereign Green Bonds, marking a new phase of institutional participation in the sustainable finance market.

Categories of Eligible Projects

As per SEBI’s guidelines, funds raised through green bonds can be utilised for the following categories of projects:

• Renewable Energy: Solar, wind, biomass, and small hydropower projects.
• Energy Efficiency: Smart grids, energy-saving technologies, and efficient appliances.
• Clean Transportation: Electric vehicles (EVs), metro projects, and rail electrification.
• Sustainable Water Management: Water conservation, recycling, and wastewater treatment.
• Pollution Prevention and Control: Air quality improvement and waste management.
• Climate Change Adaptation: Flood control, drought resilience, and coastal protection.
• Green Buildings: Construction and retrofitting of energy-efficient structures.

Regulatory Framework and Institutional Support

The Securities and Exchange Board of India (SEBI) plays a pivotal role in regulating India’s green bond market. Its 2017 framework mandates:

• Transparent disclosure of project categories and environmental objectives.
• Independent third-party certification to ensure the “green” credibility of the bond.
• Continuous reporting on project implementation and environmental impact.

In addition, the Reserve Bank of India (RBI) and the Ministry of Finance have promoted green financing as part of India’s broader climate finance strategy. The National Investment and Infrastructure Fund (NIIF) and India Infrastructure Finance Company Limited (IIFCL) have also been instrumental in facilitating green infrastructure investments.

Sovereign Green Bonds

A landmark development in India’s green finance landscape was the issuance of Sovereign Green Bonds (SGrBs) in 2023, announced in the Union Budget 2022–23. The objective was to raise funds for public sector green projects and demonstrate government commitment to sustainability.
Key features include:

• The Government of India issued ₹16,000 crore worth of Sovereign Green Bonds in two tranches (January and February 2023).
• Proceeds are earmarked for climate-focused public sector projects such as renewable energy, clean transportation, and energy-efficient public buildings.
• The Green Finance Working Committee, comprising representatives from the Ministry of Finance, RBI, and NITI Aayog, oversees project selection and evaluation.
• The bonds align with international standards such as the International Capital Market Association (ICMA) Green Bond Principles.

Major Issuers and Examples

Several Indian entities—both public and private—have actively participated in green bond issuances:

• Yes Bank (2015): India’s first green bond issue for renewable energy projects.
• NTPC Limited (2017): USD 300 million green masala bond listed on the London Stock Exchange.
• IRFC and IREDA: Issued bonds to finance renewable energy and clean transportation initiatives.
• Axis Bank (2016): USD 500 million green bond listed on the Singapore Stock Exchange.
• Power Finance Corporation (PFC): Issued green bonds worth USD 400 million for renewable projects.
• REC Limited and SBI: Issued green bonds to fund solar and wind energy projects.

These initiatives have positioned India among the top 10 emerging markets for green bond issuance globally.

Achievements and Impact

The green bond movement in India has produced notable outcomes:

• Diversification of Funding Sources: Enhanced participation of institutional investors, including foreign funds.
• Boost to Renewable Energy: Supported India’s target of achieving 500 GW of renewable capacity by 2030.
• International Recognition: Strengthened India’s reputation in global sustainable finance forums.
• Lower Borrowing Costs: Green bonds often attract concessional financing due to investor interest in ESG (Environmental, Social, and Governance) projects.
• Capacity Building: Encouraged corporates to adopt transparent and sustainable financial practices.

Challenges and Limitations

Despite significant progress, certain challenges remain in the Indian green bond ecosystem:

• Lack of Uniform Standards: Variations in definitions of “green” across institutions.
• Verification Costs: Third-party certifications increase compliance expenses.
• Limited Domestic Investor Awareness: Many investors still prioritise short-term returns over sustainability.
• Currency Risk: For international bonds denominated in foreign currencies.
• Project Pipeline Constraints: Limited availability of well-defined, bankable green projects.

Future Prospects and Policy Directions

India’s commitment to achieving Net Zero Emissions by 2070 has intensified the focus on sustainable finance mechanisms like green bonds. Future initiatives are expected to include:

• Expansion of Sovereign Green Bond Programmes with higher issuance volumes.
• Development of Blue Bonds and Transition Bonds for water and carbon transition sectors.
• Integration with Carbon Markets to channel funds into verified emission-reduction projects.
• Strengthening of Tax Incentives and ESG Disclosure Norms to attract institutional and retail investors.
• Increased Public–Private Partnerships (PPPs) for large-scale green infrastructure development.