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.

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

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