Upstox Originals
4 min read | Updated on July 09, 2024, 10:15 IST
SUMMARY
Want to earn returns, while contributing towards a “greener” future? This article dives into the world of green bonds, exploring their role in financing a more sustainable future. We break down the key features of green bonds and their growing landscape in India.
Green bond issuance has been on a rise in India
Just like regular bonds, companies and governments issue green bonds, but the borrowed money goes toward specific environmental projects.
It's all about the purpose. When you buy a green bond, you're essentially lending money for things like renewable energy sources, clean transportation, or projects that reduce pollution.
These bonds could help meet India's ambitious clean energy and infrastructure development goals. For instance, in Feb 2023 the government committed ₹35,000 crore, over multiple years, towards green tech to achieve its net zero emission target. This spend is only expected to rise.
In a bid to mobilize resources for green infrastructure projects, India issued its first SGrB of ₹8,000 crore, a two-tranche deal divided equally between five and ten-year terms, in January 2023. On February 9, each tranche was reopened for an additional ₹8,000 crore, bringing India’s total green bond liabilities to ₹16,000 crore in FY23.
Type of Bonds | 5-year Sovereign Green Bond | 10-year Sovereign Green Bond | 5-year Sovereign Green Bond | 10-year Sovereign Green Bond |
---|---|---|---|---|
Issue Size | ₹4,000 crore | ₹4,000 crore | ₹4,000 crore | ₹4,000 crore |
Issue Date | 25th January 2023 | 25th January 2023 | 9th February, 2023 | 9th February, 2023 |
Coupon / Yield | 7.10% / 7.10% | 7.29% / 7.29% | 7.10% / 7.23% | 7.29% / 7.30% |
Please note: detailed data of any 2024 issuance is not available yet
The government significantly ramped up its issuance of sovereign green bonds in FY24, raising ₹20,000 crore, a 25% increase from FY23. These bonds were offered with 5-year, 10-year, and 30-year maturities, carrying interest rates between 7.24% and 7.37%.
5% of total issuance is made available for retail investors. These government-backed bonds are secure and offer attractive returns. You can invest in SGrBs directly through the RBI's retail website or through your brokerage account. Interest rates on sovereign green bonds
Sovereign Green Bonds have a 'greenium,' meaning they have slightly lower interest rates because investors are willing to accept less due to the bonds' environmental benefits. This helps issuers save on interest costs while investors support eco-friendly projects.
For example, the latest 10-year Sovereign Green Bond offers a 7.29% interest rate, compared to 7.38% for a similar non-green bond, showing a greenium of 9 basis points.
Company | Green bond issued (₹ crore) | Maturity Period (years) | Coupon Rate (%) |
---|---|---|---|
JSW Energy | 5,443 | 10 | 4.13 |
Adani Green | 3,423 | 18 | 6.70 |
IREDA | 1,500 | 10 | 7.44 |
Indian Renewable Energy Development Agency Limited | 590 | 10 | 8.47 |
Mindspace Business Park Reit | 550 | 3 | 8.02 |
Indore Municipal Corporation | 244 | 9 | 8.25 |
Green bonds are gaining traction in India, but face hurdles that need to be addressed.
Green bonds are experiencing a surge in popularity in India. This is partly due to the government's issuance of SGrBs, which allow global investors to participate in India's climate action goals and contribute to achieving Sustainable Development Goals (SDGs). It provides a new avenue for financing environmentally friendly projects, promoting sustainability initiatives, and potentially attracting investors seeking environmental impact alongside financial returns.
About The Author
Next Story