Table of Content :
What are Green Bonds
A green bond is a fixed income instrument issued by an issuer for raising funds for financing green projects. These green projects may include renewable energy, clean transportation, sustainable water & waste management, energy efficiency, sustainable land use, biodiversity conservation and climate adaptation initiatives. This helps in raising capital and investments for new and existing projects with environmental benefits. The issuance of green bonds in India is governed under the SEBI (Issue and Listing of Debt Securities (ILDS)) Regulations, 2008.
Types of Green Bonds
Sovereign Green Bonds
Sovereign Green Bonds (SGrBs) bonds are issued by the Government of India based on the Sovereign Green Bond Framework aligned with the Green Bond Principles implemented by the International Capital Market Association (ICMA). The proceeds of green bonds are allocated to finance green infrastructure projects in the public sector to reduce the emission intensity of the country’s GDP.
The proceeds from these SGrBs are allocated/utilized under the eligible green projects of the various Ministries or Departments such as Environment, Forests and Climate Change, New and Renewable Energy, Railways, Housing and Urban Affairs, etc., as per the Framework of Sovereign Green Bonds. It backs public sector initiatives aimed at reducing carbon intensity, in line with NDC commitments, focusing on sectors such as energy efficiency, renewable energy, climate change adaptation, clean transportation and sustainable water & waste management.
On 25 January 2023, GOI issued the first sovereign green bond worth Rs 8,000 crore, followed by on 9 February 2023.
These bonds are best suited for conservative investors seeking a safer investment option with lower risk due to the sovereign guarantee.
Also Check: Sovereign Gold Bonds
Green Municipal Bonds
Green municipal bonds are fixed income instruments issued by urban local bodies to finance environmentally sustainable projects like renewable energy, clean transport and waste management. It provides a sustainable model for funding urban infrastructure.
For instance, Ghaziabad Nagar Nigam issued India’s First Green Municipal Bond under the Swachh Bharat Mission–Urban for the development of a Tertiary Sewage Treatment Plant (TSTP). The municipality raised Rs 150 crore bond for a sewage treatment plant with a coupon rate of 8.10%. Additionally, the Indore Municipal Corporation issued its green bonds in February 2023 for the development of a solar power plant of 60 megawatts.
Know About: Tax Free Bonds
Corporate Green Bonds
Corporate Green Bonds are issued by companies to raise funds for their green projects or to refinance their existing projects. Indian companies are increasingly issuing green bonds to finance sustainable projects, especially in the renewable energy sector. For instance, L&T Infrastructure Finance Company Ltd., Tata Cleantech Capital Limited, KPI Green Energy, Adani Renewables, etc, have issued green bonds to raise capital for clean energy, energy efficiency and climate-resilient initiatives. YES Bank was the first Indian Bank to issue Green Infrastructure Bonds (GIBs) worth 1,000 crore rupees in 2015.
Also Read: Corporate Bonds
Benefits Of Investing In Green Bonds
- Positive Environmental Impact: Investors seeking to invest in projects, which support environmental sustainability, reduce carbon emissions and combat climate change.
- Financial Security: For investors seeking responsible yet stable investment options with social and environmental benefits.
- Attractive and Competitive Returns: Investors seeking competitive returns while focusing on sustainability.
How To Invest In Green Bonds
Investors can invest in green bonds through both the primary and secondary markets. Investors buy the bonds directly from the issuer at the time of bond issuance. Investors can purchase bonds directly from the existing bondholders through the secondary market.
Government green bonds are issued through a Uniform Price Auction. For retail investors, a non-competitive bidding facility has been introduced wherein 5% of the notified amount of sale is reserved for eligible retail investors. Corporate and municipal green bonds are issued through either private placement and public issue.
Investors seeking to invest in green bonds through the secondary market can purchase them from existing bondholders through stock brokers and Online Bond Platform Provider (OBPP).
Also Know: How to Invest in Bonds
FAQs
Are green bonds tax-free?
Till now, no green bond has been issued in India that offers capital gains tax benefit, income tax benefit and/or tax-free income.
Are Green Bonds safe to invest in?
The safety of green bonds depends on the issuer. Sovereign Green Bonds are considered the safest because they are backed by the Government of India. On the other hand, corporate green bonds carry credit risk based on the credit rating given by credit rating agencies. Green bonds usually follow the same risk profile as regular bonds from the same issuer.
Are there green bonds in India?
The Government of India has issued Sovereign Green Bonds, with the first auction held in January 2023. Apart from sovereign bonds, many companies and financial institutions in India have issued corporate green bonds to fund energy-efficiency and other environmentally sustainable projects. Municipal bodies in India, such as Ghaziabad Nagar Nigam and Indore Municipal Corporation, have also issued green bonds in India.
