17th February 2025 (16 Topics)
1
Feb
3
Feb
4
Feb
5
Feb
6
Feb
7
Feb
8
Feb
10
Feb
11
Feb
12
Feb
13
Feb
14
Feb
15
Feb
17
Feb
18
Feb
19
Feb
20
Feb
21
Feb
India’s Struggles with Sovereign Green Bonds (SGrBs)
Context
India, like many emerging markets, has turned to sovereign green bonds to help fund its transition to a low-carbon economy, but investor demand for these bonds remains weak, hindering their effectiveness.
What are Green Bonds?
- Green bonds are debt instruments issued by governments or corporations to raise capital for projects that promote environmental sustainability, such as reducing emissions or enhancing climate resilience.
- Green Premium (Greenium): The cost advantage of green bonds, where investors are typically willing to accept lower yields in exchange for supporting sustainable projects.
- Why Are Green Bonds Important?
- Sovereign Green Bonds (SGrBs) are issued by government entities, like India’s government, to fund energy-efficient projects, renewable energy, electric locomotives, metro projects, afforestation, etc.
- India has raised almost Rs 53,000 crore through SGrBs since 2022, with funds used for green projects like energy-efficient railways and renewable energy schemes.
Challenges in India’s Green Bond Market
- Low Investor Demand: India’s green bonds have not attracted significant interest, limiting the ability to raise funds efficiently.
- The greenium (expected lower borrowing cost) is much lower in India compared to global markets (India: 2-3 basis points, Global: 7-8 basis points).
- Liquidity Issues: Small issue sizes and lack of secondary market trading have reduced the appeal of India’s green bonds.
- Many investors prefer to hold bonds until maturity, limiting market liquidity.
- Lack of Ecosystem: There is a lack of social impact funds and responsible investing mandates in India, which are key drivers for green bond demand in other countries.
Impact of Low Demand
- The funding shortfall has led India to rely on general revenue to make up the difference. For example:
- The government initially planned to raise Rs 32,061 crore through green bonds in 2024-25, but this was lowered to Rs 25,298 crore.
- As a result, funding for key projects like grid-scale solar was drastically reduced from Rs 10,000 crore to Rs 1,300 crore.
Possible Solutions
- Explore Sustainability Bonds: Combining green and social projects into a single bond could attract more investor interest, as it has in other emerging markets.
- Improve Transparency: Better reporting and the publication of post-issuance allocation and impact reports could increase investor confidence.
- Partner with Multilateral Banks: Collaborating with development banks (e.g., the World Bank) to back green bonds with their credit ratings could enhance India’s attractiveness in the global market.
Courses
Study
Notes
Home
Resources
More
