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Green Bonds

Green bonds are a growing category of fixed-income securities that raise capital for projects with environmental benefits.

Green Bonds: Another investment tool on the block

‘Going green’ is no longer an idiom but it is the need of the hour. Have you heard of Green Bonds? Well, this is like any other regular bond. The only difference here is that the money raised through these bonds is utilised towards financing environmental projects. The concept is just a decade old globally. In the last few years, they have become quite popular among Indian and global issuers. According to a report by the Climate Bonds Initiative (CBI), global green bond issuance reached a record high of $269.5 billion by the end of last year and could reach $400-$450 billion this year.

In 2019, India was the second-largest emerging market issuer of these bonds, accounting for more than $3 billion in Green Bond issuance. In India, the interest in these bonds has been energised by Prime Minister Narendra Modi’s Modi’s dream of a clean energy future for the ‘New India’, and his ambitious plan to triple renewable power capacity to 175 gigawatts by 2022.

When did the concept of Green Bonds start

In 2007, green bonds were launched by the European Investment Bank and the World Bank. Subsequently, in 2013, corporates too started participating, which led to its overall growth.

India Green Bond market

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India’s green bonds market is still evolving. The country’s first green bonds were issued as recently as 2015. Yes Bank was the first bank to come out with such a bond. “Thus, issuance of Green Bonds in India shall be governed under Issue and Listing of Debt Securities (ILDS) Regulations, requiring the issuer to make disclosures. However, given the nature of such bonds, there is a need for defining what all constitute Green Bonds and the specific disclosure requirements with regard to the management of proceeds, reporting requirements, etc.,” market regulator Sebi had noted.

Who issues green bonds in India

SBI, Yes Bank, Exim Bank and Axis Bank are a few Indian banks that have issued these bonds and have used them to find green projects. In 2018, State Bank of India entered the market with a $650 million certified climate bond

The Green Bond Principles have 4 components – use of proceeds, the process for project evaluation and selection, management of proceeds and reporting.

Major issuer of Green Bonds

World Bank is the major issuer of these bonds. It has issued over $13 billion equivalent to these bonds through more than 150 transactions in 20 currencies. Other prominent issuers include the European Investment Bank (EIB), Asian Development Bank (ADB)

Emerging market green bond issuances in 2019 touched $ 52 billion increasing by 21% from 2018. China is the largest issuer of green bonds among emerging markets, accounting for more than $30 billion in 2019.

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70% of the global greenhouse gas emissions come from infrastructure development, construction, power plants and transport system operations, according to a report by the World Bank. Global warming has become a serious threat to the survival of mankind. Today, these bonds help companies tap money from specialized funds focused on climate change.

Are these a good investment?

For investors focused on sustainability, they are a good option. It earns them attractive fixed income returns, with proper attention to portfolio construction.

Who can buy these bonds?

It is a bunch of people who like the idea of investing in ‘green’ assets. The purchasers are typically institutional investors. Other buyers include investment managers, governments and corporate investors. Individuals, young investors can also buy these ‘environment-friendly’ bonds.