Following a record-breaking year in 2021, India’s green bond issuance is expected to establish a new high in 2022.
Experts predict that corporate and bank issuers in India will become increasingly active in the climate-related debt market since the world’s third-largest emitter of carbon dioxide may require as much as $10 trillion to become carbon-neutral by 2070. More issuers will look to the offshore market, which has a larger and more diverse pool of environmentally conscious investors.
According to Climate Bonds Initiative, a U.K.-based green bond tracking firm, India issued $6.11 billion in green bonds in the first 11 months of 2021. It was the most successful year since the country’s first green bonds were issued in 2015.
“As Indian corporations grow more concerned of their carbon footprint, we expect 2022 to be another fantastic year for issuance of these bonds,” said Nidhi Sharma, director of investment strategy and products at LC Capital India, an investment management firm.
According to Sivananth Ramachandran, director of capital markets policy, India, CFA Institute, banks would likely increase green debt issuance to fund their growing lending program to speed India’s energy transition. According to the Climate Bonds Initiative, nonfinancial corporations issued 94 percent of green bonds in the first 11 months of 2021.
“With banks still controlling a large portion of lending and pressure on them to speed up financing to sustainable projects, it may only be a matter of time before more of them become active issuers of green bonds,” Ramachandran added.
Experts predict that more Indian issuers will turn to the offshore bond market to tap into a larger and deeper capital pool outside of their native nation.
“While onshore green financing in India has grown significantly since its modest beginnings in 2004, financing net-zero for the world’s third-largest emitter will require access to the deep pool of capital that exists offshore,” said Mitch Reznick, head of sustainable fixed income at Federated Hermes, a U.S.-based investment manager.
Due to relatively favorable valuations and reasonable economic growth prospects, green bonds issued by emerging nations such as India have a tremendous appeal to overseas investors, according to Reznick.
According to a Nov. 18 report by the Council on Energy, Environment and Water Center for Energy Finance, or CEEW-CEF, an Indian think tank, offshore funding could help bridge the $3.546 trillion gap between the total investment required to achieve net-zero and the amount that can be reasonably contributed by domestic banks, nonbank financial companies, and capital markets.
According to the CEEW-CEF, India will need to invest $10.103 trillion by 2070 to achieve carbon neutrality. According to the think tank, India’s coal-dependent power sector will require $8.412 trillion in renewable energy sources, with another $1.494 trillion needed to develop carbon capture and storage and green hydrogen technology.
“The total investments required for net-zero society could be greater than India’s current GDP. As a result, there should be some financing gaps.”
Can I purchase green bonds?
Green bonds are used to fund environmentally friendly projects all around the world. While you may not be able to invest directly in a green bond, you can buy green bond funds. Green bonds, like their sustainable fund relatives, are more popular than ever.
How can I purchase bonds in India?
Government securities, high-quality corporate bonds, instruments with AA and lower ratings, market-linked debentures, and even perpetual bonds are all available on bond platforms.
What exactly is an SBI green bond?
He stated that India INX will endeavor to develop a green corridor with Luxembourg, allowing Indian issuers to immediately qualify for dual listing on the LuxSE, allowing them to attract investors from Europe and throughout the world. “With over $33 billion dollars in bond listings, India INX has emerged as the biggest bond listing venue,” he added.
“The dual listing of SBI bonds is a major milestone for IFSCA in establishing regulatory convergence with the leading international markets of Luxembourg, which has the largest green bond listings in the world,” said Manoj Kumar, Executive Director, IFSCA. This will allow Indian and European issuers to consider the IFSC as a centre for green and sustainable bond issuance. The dual listing would further boost foreign investors’ confidence in sustainable products listed at IFSC during World Investor Week, which is focused on sustainable finance.”
“State Bank has raised $800 million in the green bond market so far,” stated Ashwini Kumar Tewari, Managing Director of SBI. The green bond’s listing on the LuxSE will provide new options for market development and money raising in the green bond industry.”
SBI was the first public sector bank in India to produce a sustainability report using the Global Reporting Initiative (GRI) format, according to Tewari. GSM Green, a platform for capital raising and trading in green, social, and sustainable bonds, was launched by India INX in 2019. The platform was created in accordance with the ICMA’s Green Bond Principles and Climate Bonds Initiative, making it a suitable investment platform for worldwide investors.
In India, what kinds of green bonds are available?
Governments, foundations, banks, and private investors can support “green” initiatives using a variety of methods. Grants, risk-mitigation instruments, equity, and debt are the four types. Global foundations and NGOs typically provide project-specific grants, such as for decentralized solar mini-grids for rural electrification. Credit enhancement guarantees and insurance products are examples of risk-mitigation instruments. Guarantees are assurances given to lenders by government organizations, development finance institutions (DFIs), or financial services businesses that cover a portion or the whole payment in the event of a default by the borrowers. Environmental risk liability coverage and indemnification against climate/ecological losses are provided by green insurance products. DFIs can provide early-stage seed financing to establish a project using equity. In addition, venture capitalists and private equity funds can invest in such projects/assets in exchange for a share of ownership, or the general public can invest through initial public offerings (IPOs).
Green loans and green bonds are the two main types of debt securities. Green loans are only available from banks, whereas green bonds, sometimes known as climate bonds, can be issued to the general public. The holder of a bond is the lender, the issuer is the borrower, and the return to the lenders is fixed interest payments. Green bonds have gained the most traction among all green finance vehicles. Global green bond and loan issuance surged 51% year on year to $257 billion in 2019, according to the Climate Bonds Initiative (CBI), an international non-profit organization.
According to the Economic Survey 2019-20, India has one of the fastest-growing green bond markets in Asia, with $10.3 billion in green bond transactions in the first half of 2019. As previously said, green bonds are similar to regular bonds in that the proceeds are designated towards specific “green” projects or assets, i.e. climate-friendly initiatives or assets. Green bonds are classified as organization-guaranteed bonds, asset-backed bonds, or hybrid bonds, depending on the source of repayment for the lenders and the remedy available in the event of a default. Let’s imagine a company offers bonds to fund the construction of a solar farm.
In India, who issued the first green bond?
Electricity Finance Corporation Ltd (PFC), the major NBFC in the power sector, has successfully issued its first Euro Green Bond. The bond, which has a maturity of seven years and a face value of 300 million euros, has been priced at 1.841 percent.
Are green bonds a good investment?
Green bonds may not offer the best yields, but profit isn’t always quantifiable. Green bonds allow you to build an income-generating portfolio while also allowing you to invest responsibly.
Green bonds are available to everybody.
As a result, the corporation should specify specific environmental issues the bond revenues will be used to solve. It must state what non-monetary tools and techniques were used for project evaluation and selection to address the declared environmental issues, explain in detail how the proceeds will be managed, and document in detail what metrics the company will use to measure the impact of the projects invested, such as how much greenhouse gas emissions will be reduced and how it will communicate this to investors.
A few banks have mobilized funds so far, including SBI, Yes Bank, Axis Bank, and others, and these bonds are listed on India International Exchange (INX), a wholly owned subsidiary of BSE. The Global Security Market of India INX is the country’s first debt listing platform, allowing both international and Indian issuers to raise cash in any currency from investors all over the world.
Green bonds should be included in an investor’s portfolio because they are less risky than other types of bonds. The most notable feature of green bonds is that, while funds are gathered for a proclaimed green project, repayment is related to the issuing firm rather than the project’s success or failure. As a result, the onus of paying interest and principal rests with the issuing company and is not contingent on the project’s success.
Green bonds provide an opportunity for the issuer to show their concern for the environment. The issuer company attracts a specific set of investors from the global market who have set aside cash for such green enterprises, resulting in a lower interest rate on such bonds than standard bonds.
Although many companies utilize green bonds to generate funding, claiming that the projects will cut greenhouse gas emissions and improve energy efficiency, there have been cases where companies have not followed the guidelines to the letter. Furthermore, when compared to international issuances, green bonds issued in India have a shorter term of 10 years. In addition to the foregoing, there is the possibility of a currency risk.
To summarize, green bonds may not give the same returns as standard bonds, but they do provide investors with a more diverse portfolio that includes ecologically conscious selections.
To be considered a legal green bond, the issuer must meet a set of requirements known as the Green Bond Framework.
Green bonds traded on the India International Exchange have helped SBI, Yes Bank, Axis Bank, and others raise funding.
Green bonds should be included in an investor’s portfolio because they are less risky than other bonds.
Green bonds issued in India have a 10-year term, which is shorter than that of international issuances.
Companies issue green bonds for a variety of reasons.
Green bonds are similar to conventional bonds in that the money raised from investors is used solely to fund projects that have a good influence on the environment, such as renewable energy and green buildings.
What are the five different forms of bonds?
- Treasury, savings, agency, municipal, and corporate bonds are the five basic types of bonds.
- Each bond has its unique set of sellers, purposes, buyers, and risk-to-reward ratios.
- You can acquire securities based on bonds, such as bond mutual funds, if you wish to take benefit of bonds. These are compilations of various bond types.
- Individual bonds are less hazardous than bond mutual funds, which is one of the contrasts between bonds and bond funds.