India’s unique geography, geology together with its vast climatic diversity make it prone to climate change. As part of its endeavour to accomplish sustainable development goals, India has made strides towards a low-carbon economy with ambitious targets such as 175 GW of renewable energy capacity by the year 2022. Such targets warrant massive capital funding.
Green Bonds are a debt instrument issued by companies, countries and multilateral organisations to exclusively fund projects that have positive environmental or climate benefits and provide investors with fixed income payments. The projects can include renewable energy, clean transportation and green buildings, among others. Recently, the finance minister in the Budget 2022 announced that the government proposes to issue sovereign green bonds to mobilise resources for green infrastructure.
The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy. The announcement is in sync with India’s commitment to achieving net-zero carbon emissions by 2070. Sovereign green issuance sends a powerful signal of intent around climate action and sustainable development to governments and regulators. It will catalyse domestic market development and provide impetus to institutional investors and provides benchmark pricing, liquidity and a demonstration effect for local issuers, helping to support the growth of a local market.
India will issue at least 240 billion rupees ($3.3 billion) in sovereign green bonds as the country marks a shift towards a low-carbon economy, according to officials with knowledge of the matter. The debut sale may take place in the first half of the fiscal year that starts on April 1, and a decision to sell more green debt will depend on the response to the initial issuance, the people said, requesting not to be identified as the information is private. The planned issuance comes amid a global boom in sustainable investments. India is the world’s third-biggest emitter of greenhouse gases and plans to more than quadruple its renewable power generation capacity by 2030. Indian renewable energy companies raised debt worth 17.6 billion rupees in February, the most in nearly a year
While the Union Budget’s proposal to issue green bonds is a timely one, its success will depend on the strength of the bond market in the country, among other factors. The development and growth of a green bonds market in the country may see entry of new participants such as debt aggregators which pool loans from banks or developers and issue green bonds, securitising cash flows from the loan pool. It is imperative to highlight in this context that the performance of green bonds would ultimately depend on the robustness of the bond market in the country. India’s current sovereign credit rating indicates that many green bonds would also require credit enhancement in order to attract international investors.
