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A STUDY ON GREEN BONDS IN INDIA – NEED OF THE HOUR

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© 2021 IJRAR December 2021, Volume 8, Issue 4 www.ijrar.org (E-ISSN 2348-1269, P- ISSN 2349-5138)

A STUDY ON GREEN BONDS IN INDIA –

NEED OF THE HOUR

Author: Dr. D. Thirumala Rao Co-Author: G. Santoshi

Vice-Principal (Academic) Head, Dept. of Business Administration
IIMC, Hyderabad IIMC, Hyderabad

Abstract
Modulation to a sustainable development requires financial sources for investments. Over a last decade
green bonds have emerged as an outstanding innovation in the area of sustainable finance. Green bonds
are the basic financial instruments for financing green projects. Since green bond market is increasing
rapidly in the present scenario, only few research studies have been carried so far in this area. So the
present research highlights about the progress of green finance in India and issue of green bonds. To
analyze the progress made, data was collected from secondary sources i.e. from official portals in
particular RBI and SEBI website and journals, articles, other websites are also considered. Finally it was
found that green finance has made tremendous progress from past seven years i.e. from 2013 to 2019 and
India stood 4th position in amount issued on Green Bonds as a percent of all bonds issuance among the 12
countries.

Key Words: Green Finance, India, SEBI, RBI and Green Bonds.

1.0 INTRODUCTION

Global warming, energy conservation, pollution control and environmental protection are the issues that
need attention in the present scenario. Not only the non-monetary aspects, monetary aspects are also to be
given due importance for funding purposes to resolve the above mentioned issues.

In recent times, Financial Market has come up with the concept “Green Finance” i.e. funding for the
protection of environment. Green Finance includes the Green Bonds, Environment, Social and Governance
(CSR) and Renewable Sources.

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Emerging economies such as India needs adequate investments in climate action in order to transition
towards a future that aims at Low-carbon Climate Resilient (LCR). Our country requires fossil fuels at an
affordable price and needs to protect itself against price fluctuations. India could attract greater amount of
investments into its economy through “Green Bonds”, a climate finance debt instrument that addresses
environmental and climate-related issues and challenges.

CONCEPT OF GREEN BOND

Figure 1.0

Source: www.bing.com/search?q=green+bonds+images

A Green Bond is a fixed-income instrument designed specially to support specific climate – related
environmental protection projects. These bonds are typically asset-linked and backed by the issuing
entity’s balance sheet, so they usually carry the same credit rating as other debt obligations carry.

FEATURES OF GREEN BONDS

1. A fixed-income instrument.
2. They typically come with tax incentives to enhance their attractiveness to investors.
3. The World Bank issued the first official Green Bond in 2009.
4. Around $ 157 billion worth of Green Bonds were issued in 2009.
SCOPE OF GREEN BONDS
Green Bonds projects aim at energy efficiency, pollution control, fishery, forestry, sustainable
agriculture, clean transportation, clean water, the protection of aquatic and terrestrial eco system. The
scope of Green Bonds is also extended to the cultivation of environmentally friendly technologies and
mitigation of climate change.

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STATUS OF GREEN BONDS

To quantify for Green Bonds status, they are often verified by a third party such as the Climate Bond
Standard Board (CBSB0, which certifies that the bond will fund projects that include benefits to the
environment.
2.0 LITERATURE REVIEW
1. Tolliver, Keeley and Managi (2020), who opined that Green Bonds are growingly applied in financing
initiatives aimed at reducing emission, sustainable development and other green investments. This led to
initiation by the institutions to incorporate Green Bonds in their financial structure manage climate
change.
2. Flammer (2019), as indicated by the author, multiple organizations, notably, Government agencies,
supranational bodies and corporations have recognized the significance of financial sustainability in
responding to the problem of climate change. In essence, the issuance of Green Bonds is considered vital
in averting the worsening of climate change.
3. Karpf and Mandel (2018), they viewed that, municipal markets in the country have tended to penalize
Green Bonds by trading them at lower prices and generating higher yields than anticipated by their clients.
4. Hachenberg and Schiereck (2018), in financial circles, increased awareness of sustainability has led to
the establishment of the practice of Green Bonds. Despite of existing impediments, the Green Bonds
market has expanded remarkably in the last few years.
5. Voica, Panait and Radulescu (2015), they observed that, investments in Green Bonds, especially in
infrastructure, is critical to realize the objective of sustainability in financial management.

3.0 NEED FOR THE STUDY

From the literature review, it is analyzed that a financial instrument “Green Bond” is emerged as a funding
source in protecting the environment, pollution control and sustainability of eco system. It is in the
evolutionary stage in a country like India and it need to bring financial support in the present scenario, as
our aim is to reduce the environmental damage and protect the globe from future pandemics.
4.0 OBJECTIVES OF THE STUDY

Based on the literature review and need for the study, the following objectives are taken.
1. To analyze the need for Green Bonds in India and to study the steps taken up by SEBI.
2. To study the progress of Green Bonds from Indian perspective.

5.0 RESEARCH METHODOLOGY

This study is based on the secondary sources which was collected from reputed journals, articles and
official websites of RBI and SEBI.

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6.0 GREEN BONDS IN INDIA

Need for Green Bonds in India
India has set ambitious renewable energy goals to improve energy access and energy security while taking
action on climate change. India has embarked up on an ambitious target of building 175 Gigawatt of solar,
wind and other renewable energy capacity by year 2022 and this requires a massive estimated fund of
around USD 264 billion.

To scale the necessary finance and to achieve these national targets, new innovative financial instruments
such as “Green Bonds’ need to be scaled up.

SIGNIFICANCE OF GREEN BONDS FROM INDIAN PERSPECTIVE

India started emphasizing the need for ‘Green Finance’ in the early 2007. In December, 2007 RBI issued a
notification on “Corporate Social Responsibility”. Sustainable Development and Non-Financial Reporting
– Role of Banks and mentioned the importance of global warming and climate change in the context of
sustainable development. In 2008, The National Action Plan on Climate Change (NAPCC) was
formulated with a vision to outline the broad policy framework for mitigating the impact of climate
changes.

There are several fiscal and financial incentives at work in India. These incentives are in line with India’s
commitment under the 2015 Paris Agreement to reduce Green House Gas Emissions.

MAJOR MOVEMENT FOR GREEN BONDS IN INDIA

1. The Climate Change Finance Unit (CCFU), was formed in 2011, within the ministry of finance.
2. Implementation of sustainability disclosure requirements.
3. In May, 2017, SEBI issued guidelines for Green Bond issuance specifying the disclosure requirements.

STEPS TAKEN BY SEBI TO PROMOTE GREEN BONDS

The following are the steps taken by the SEBI in recent years.
1. SEBI initiated a consultation Process: It includes disclosure process for public issue and Listing of
Green Bonds and Listing of Privately issued Green Bonds.
2. Concept Paper: It was placed on SEBI website on Dec 03, 2015, to seek public comments. The
disclosures were based up on Green Bond Principles, 2015.
3. Criteria of “Green”: issuers to define and disclose their criteria for what is considered ‘green’ i,e.,
which projects, assets or activities will be considered eligible. Further broad categories of Green are also
identified.
4. Project Evaluation and Selection: Issuer shall disclose the environmental sustainability objectives of
the proposed activities /projects. Based on the details, the process will be used to apply ‘green’ criteria to
select the projects/activities.

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5. Ensuring Funds usage: details of the processes and controls, so as to ensure funds are used only for
the specific ‘green’ projects.
6. Reporting: Finally, evaluating the worth of the project/asset, implementing, reporting of the progress,
to which Green Bonds proceeds have been allocated, against both financial and environmental criteria.

In addition to these guidelines, the Ministry of Corporate Affairs imposed mandatory reporting of the
progress on Corporate Social Responsibilities (CSR), under the Companies Act, 2013, in October, 2017.

7.0 DATA ANALYSIS AND INTERPRETATION

PROGRESS OF GREEN FINANCE - “GREEN BONDS” IN INDIA

Fig 2.0

Green Finance: India’s Comparative Score

Source: “Green Finance in India” – RBI Bulletin January, 2021

Interpretation: From the above chart, we can say that India’s comparative score is in increasing trend
from yr to yr which implies green finance has made good progress from past seven years i.e. from 2013 to
2019.

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Fig 3.0
Distribution of Finance in Percentages

Source: “Green Finance in India” – RBI Bulletin January, 2021

Interpretation: From the above chart, it is observed that, Green Finance is 42%, CSR is 58% and other
parts/aspects of green finance are 0%.

Table No.1

Green Bonds Issuance

since January 1st 2018 (Corporate and Government: All Maturities)

Country Amount No.of Amount issued Number of

issued Bonds as per cent of all bonds issued as
($ Millions) issued bond issuance per cent of all
(per cent) bond issuance
(per cent)
Europe 196854 594 1.3 0.4
China 63023 183 0.3 0.2
USA 35421 71 0.2 0.2
Japan 11815 88 0.1 1.1
South Korea 11781 44 1.0 0.4
Central and 8869 53 0.5 1.0
South America
India 7792 22 0.7 0.3
South-East 7208 86 0.6 1.4
Asia
Australia and 5878 15 1.1 0.8
New Zealand
UK 5311 17 0.4 0.5
Hong Kong 4781 19 0.5 1.0
Singapore 496 9 0.05 1.2

Source: “Green Finance in India” – RBI Bulletin January, 2021

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© 2021 IJRAR December 2021, Volume 8, Issue 4 www.ijrar.org (E-ISSN 2348-1269, P- ISSN 2349-5138)

Interpretation: From the above table, it is observed that, in the Indian perspective, the amount issued on
Green Bonds as a percent of all bonds issuance is 0.7% and the number of Green Bonds issued as a
percent of all bonds issuance is 0.3%.
8.0 RECOMMENDATIONS
1. Financial structure of companies should include investment in Green Finance, as apart of Social
Investment Responsibility (SIR).
2. SEBI guidelines should be more strengthened to promote investments in Green Bonds.
3. RBI policies should be emphasized more on the Green Finance Schemes with the Commercial Banks.
4. Global experiences suggest that, there should be an integrated policy approach towards Green Finance.

9. CONCLUSION
Environmental protection is the most required priority in today’s scenario. Finance is an essential element
to invest in green projects. Green bonds are in the emerging stage in India. Green projects have a high up-
front cost with some cost saving features only applicable in the long term.
At this juncture of pandemic, the world is fighting against Covid-19 and its impact is on the entire
economy and on the environment. The pandemic is also affecting the opportunities of the investors to take
up new projects and it is causing an obstacle to the stakeholders to lay down policies to finance the green
projects. After March, 2020 many such projects have not taken a forward step.
Green Bonds market is to be increased to finance the green projects, as it is definitely an important mean
that drive towards sustainable development. A country like India need such kind of decisions in finance
sector, to allocate the financial resources in green projects for power, renewable energy, pollution control,
environmental protection.

10.0 SCOPE FOR FURTHER RESEARCH

Environmental Protection, Sustainable Development, Pollution Control, Renewable Energy is gaining
momentum in the recent years. Pandemic scenario emphasized more on the environment protection and
investments in protection of green environment. These elements can give scope for further research to the
research scholars. Topics on Green Finance, Green Accounting, Green Bonds can be further analysed to
enhance the scope of study and expand the domain in finance.

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© 2021 IJRAR December 2021, Volume 8, Issue 4 www.ijrar.org (E-ISSN 2348-1269, P- ISSN 2349-5138)

REFERENCES
1. Flammer, C. (2019). Green bonds: Effectiveness and implications for public policy. Environmental
and Energy Policy and the Economy, 1-46. doi:10.3386/w25950.
2. Hachenberg, B., & Schiereck, D. (2018). Are green bonds priced differently from conventional
bonds? Journal of Asset Management, 19(6), 371-383. doi:10.1057/s41260-018-0088-5
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3259555.
3. Karpf, A., & Mandel, A. (2018). The changing value of the “green” label on the US municipal
bond market. Nature Climate Change, 8(2), 161-165. doi:10.1038/s41558-017-0062-0.
4. Tolliver, C., Keeley, A. R., & Managi, S. (2020). Drivers of green bond market growth: The
importance of nationally determined contributions to the Paris Agreement and implications for
sustainability. Journal of Cleaner Production, 244, 118643. doi:10.1016/j.jclepro.2019.118643.
5. Voica, M. C., Panait, M., & Radulescu, I. (2015). Green investments: Between necessity, fiscal
constraints and profit. Procedia Economics and Finance, 22, 72-79. doi:10.1016/s2212-
5671(15)00228-2.

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