NEWS: Global issuance of green bonds has crossed $3 trillion and reached $577 billion in 2024, yet they account for only 3 per cent of the bond market.
About Green bonds
- Green bonds are debt instruments issued by governments (Sovereign Green Bonds issued by RBI), corporations, and multilateral banks to raise funds for projects that reduce emissions or enhance climate resilience.
- Interest payments: Like other bonds, these bonds provide investors fixed interest payments.
- Investors in green bonds are usually long-term, impact-focused investors looking for stable returns and compliance with green financing mandates.
- Less tax: Generally, governments provide tax incentives like tax credits to make them attractive for investors.
- Regulators
- Securities and Exchange Board of India (SEBI) for corporate green bonds and
- The Ministry of Finance (Department of Economic Affairs) (which oversees the Green Finance Working Committee) for sovereign green bonds.
- The World Bank issued the first official green bond in 2009.
- Status: India’s corporate bond market is about 17 per cent of GDP and its green bond segment is about 4 percent.
- Different from other types of bonds
- Yield: These bonds typically offer lower yields (interest rates) than conventional bonds, allowing issuers to raise funds at a lower cost (greenium).
- The greenium, or green premium, is the yield difference that creates a cost advantage for issuers, and a higher greenium makes green investments more attractive.
- Commitment: The proceeds from Green Bonds are exclusively earmarked for green and environmentally sustainable projects.
- For regular bonds, the issuer can use the proceeds for various purposes at her discretion.
- Yield: These bonds typically offer lower yields (interest rates) than conventional bonds, allowing issuers to raise funds at a lower cost (greenium).
- Green bonds market feature
- Issuers often offer lower yields than conventional bonds and commit to use proceeds exclusively for green investments.
- Issues
- High compliance, certification, and reporting costs disadvantage smaller entities and create an uneven field.
- The absence of global standardisation in green definitions reduces comparability for investors and issuers.
- Greenwashing risks erode credibility, and funding of thermal power alongside green fundraising confuses investors.
- Greenwashing refers to the misrepresentation of a bond’s environmental credentials, where the proceeds may not genuinely fund green projects or deliver meaningful benefits, which dents investor trust and market credibility.
