Global economy is significantly obstructed by three major challenges: climate change, energy constraints and financial crisis. To overcome these challenges strong governments coherent policies and good framework conditions is desirable. To triumph sustainable growth, finance sector plays an imperative role. An innovative financial solution Green finance encompasses investment in ecologically defensible products and projects. One of the major sources of green finance is green bond. Green bond is a fixed income financial instrument for raising capital through the debt market like corporate bonds. The key metamorphosis in green bonds is raising finance for environmental benefits, such as renewable energy, low carbon transport or climate adaptation.
Let us understand what, who and how of Green Bonds works?
State and national government, municipals, export-import banks, inter government organizations such as the world bank or regional development banks, financial institutions and other corporations can issue green bonds.
Typically, Green Bonds are allotted for the period of 18 months to 30 years. Issued by governments, inter government organizations, financial institutions and other corporations. Institutional investors, specialists environmental, social, governance investors, responsible investors, corporate treasury and retail investors are the foremost partakers in bond market. Differentiated Green Bonds available in market: High yield Green bonds, Corporate Green Bonds, Municipal Green Bonds, Commercial bank Green Bonds, Labelled Green covered bonds and Asset backed securities are the key categories of Green Bonds available in the market. Green bonds can be dispensed for the purpose of: Renewable energy, Energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management and climate change adaptation.
Green Bonds are issued for the purpose of green financing projects only. SEBI (Issue and Listing of Debt Securities) regulation, 2008 governs public issue of debt securities and listing of debt securities issued through public issue or on private placement basis, on a recognized stock exchange. Every issuer of Green Bonds is governed by ILDS- issue and listing of debt securities in terms of disclosure, management of proceeds, reporting requirements etc. SEBI controls the process requirements to ensure the fund/investors will no longer need to test for eligibility and quicker decision making. Every issuer has to fulfil net worth prerequisite, rating considerations and track record before proceeding for issue of Green Bond.
Why Green Bonds are important for issuer?
Ø Positive public relations: it benefits in augmenting an issuer reputation, as it demonstrates green credentials and displays commitment towards sustainability.
Ø Investor diversification: it provides issuer the access to green venture investors who focus primarily on Environmental, social and governance related aspects of projects.
Ø Potential for pricing advantage: as it attracts special investors, issuer benefits through better pricing.
Issuance of Green Bond by Indian Entities:
Name of the issuer
February 2015 and August 2015
Rs. 1000 crores and Rs. 350 Crores
Renewable energy projects such as solar, wind and biomass projects
Maturity: 10 years
Oversubscribed two times
CLP India- first Indian corporate (non-bank)
Rs. 6 billion
Capital expenditures refinancing of wind asset
Maturity: 5, 6, 7 years
Coupon: 9.15% pa.
Primarily attracted Mutual fund investors
$ 500 million dollar denominated bond
The issue proceeds are directed toward
funding eligible green projects in Bangladesh and Sri
Maturity: 10 years
Price: 147.5 BPS over US T bonds.
Oversubscribed 3 times and subscribed by asset managers, banks and sovereign wealth funds and insurance companies
ReNew Power Ventures
Rs. 4.51 billion
Refinance bank loans for the company’s 85 megawatts (MW) wind power plant in Maharashtra.
Maturity: 17.5 years
Institutional investors to support renewable infrastructure projects.
Hero Futures Energies
Rs. 3 billion
Climate bond NCD
Finance the development of wind energy projects in the states of Madhya Pradesh, Telangana, and Andhra Pradesh
Maturity: 10 year
Climate change institutional investors.
IDBI bank- first public sector bank
$ 350 million
Financing renewable energy projects
Maturity: 5 years.
Price: 255 bps over US treasury
Oversubscribed 3 times.
82% from Asia and 18% Europe
IREDA- Indian renewable energy development agency.
Tax free bond
Rs. 10 million
Renewable energy projects across India
Maturity: 10-20 years Oversubscribed 5 times.
Retail investor -7.68%
HNI and Institutional buyers
Conclusion: Green Bond is one of the major sources of green financing to achieve sustainability in environmental benefits, such as renewable energy, low carbon transport or climate adaptation. Green Bonds are typically issued for the period of 18 months to 20 years by government, inter government, financial institutions and other corporates. YES bank, CLP, Hero Future energies, IDBI and IREDA are some of the major issuer of Green Bond floated in India as well as international market for development of renewable energy, wind energy and climatic adaptation projects. There is significant market potential for Green Bond in India in coming years.
<NRDC report “Greening India’s Financial Market: How Green Bonds Can Drive Clean Energy Deployment”, April 2016>
<SEBI report “Disclosure requirements for Issuance and listing Green Bonds”>
<Economic times articles>