Green bonds are generally considered as an important dimension of climate finance. Analyse its importance and development scenario in the Indian context. Also highlight some of the challenges faced by green bond markets in India.
Green bonds are generally considered as an important dimension of climate finance. Analyse its importance and development scenario in the Indian context. Also highlight some of the challenges faced by green bond markets in India.
- Green bonds are designated bonds intended to support climate-related or other types of special environmental projects.
- More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, clean transportation and the like.
Importance of Green Bonds:
- It serves as a powerful instrument for financing a sustainable, low carbon economy.
- The Environmentally conscious investors get attracted to these bonds, who otherwise may not invest.
- To fulfill India’s commitment of building 450 GW of renewable energy capacity by 2030.
- The Budget allocations towards renewable energy are insufficient.
Indian Green Bonds Market:
- In 2012, BSE launched the Green Index called Greenex (Carbon Efficient Live Index)
- In 2015, YES Bank issued the first green bond for financing the renewable and clean energy projects.
- Gradually, the green bond market has expanded to several public sector undertakings, state-owned commercial banks, state-owned financial institutions, corporates, and the banking sector.
- Currently, the Indian green bond market is $7 billion—that is a lot in the Indian bond market but globally, it is just a drop in the ocean.
- India is the 8th largest green bond market.
Challenges in India’s bond market:
- Weak regulatory monitoring mechanisms
- High currency hedging costs.
- Poor sovereign ratings (BBB-)
- Lower tenures
- Lack of Standardised reporting
- Exposure to credit risks.
- Additional cost required to issue a green bond
- Lack of concentrated measures to support this nascent instrument.
- Lack of sector diversification in green bond issuances
- Lack of methodologies and frameworks for evaluating diverse projects in the Indian context
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