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A Green Bond is a fixed-income debt instrument, like a regular bond, which is specifically earmarked for financing ‘green’ projects such as renewable energy projects, clean transportation projects, water management projects etc. It encourages sustainability and has numerous goals – from climate change mitigation to energy efficiency, and the prevention of pollution etc.[1].


The Green Bond market in India has achieved various milestones since 2015, when Yes Bank issued India’s first ever Green Bond.

A large number of corporations in the renewable energy sector have cashed on this opportunity to raise capital and attract foreign investment.

In August 2016, the National Thermal Power Corporation (NTPC) became the first Indian corporate entity to list the first green masala bond on London Stock Exchange[2].

In 2018, the State Bank of India raised USD 650 million by way of Green Bonds to fund sustainable and eco – friendly projects.

In the first half of 2019, India became the second largest Green Bond market after the People’s Republic of China, having executed green bond transactions worth USD 10.3 billion.

In order to encourage and multiply environmentally sustainable investments, became a part of the International Platform on Sustainable Finance (IPSF) in 2019. The IPSF aims at scaling up the mobilisation of private capital towards environmentally sustainable projects[3].

India is amongst the first few countries in the world to have laid down a statutory framework to regulate Green Bonds.


Indian regulators have played an active role in this regard and have been successful in foreseeing the growth and impact of Green Bonds in the Indian market.

In 2017, SEBI issued the Disclosure Requirements for Issuance and Listing of Green Debt Securities (Disclosure Requirements)[4], in which green debt securities have been specifically defined. SEBI, via the Disclosure Requirements, calls on the issuer of the green bond (a debt security instrument) to make certain disclosures, including –

  • a statement on the environmental objectives of the issuance,
  • details of the procedures to be employed for tracking the deployment of the proceeds of the issue, and
  • details of the project and/or assets for which the issuer proposes to utilise the proceeds of these green debt securities.

The Reserve Bank of India (RBI), in addition to the above SEBI guidelines, has passed regulatory reforms to strengthen the corporate bond market in India.

The Green Bond market is essentially a subset of the corporate bond market and therefore, for Green Bonds to be recognised, the bond market needed to undergo further reforms as well.

RBI has increased the extent of partial credit enhancement to 50% of the bond issue size, with a limit up to 20% of the bond issue size for a particular bank[5]. This move has led to provide additional comfort to the investors.


Green Bonds have been rapidly emerging in the Indian market in recent years and have caught the eye of many investors for various reasons.

The proliferation of Green Bonds will help in financing eco-friendly projects and technology, as well as with attracting foreign investments due to the sudden growth in the energy sector globally. Green Bonds also have intangible value – they enhance the issuer’s reputation and showcase their commitment towards sustainable development.


In accordance with a working paper published by the RBI titled ‘Green Finance in India: Progress and Challenges[6], Green Bonds make up only 0.7 per cent of all the bonds issued in India. Even though India has the second-largest Green Bond market, it lags far behind China (see above).

Importantly, Green Bonds have a relatively low interest rate viz. loans offered by commercial banks, this is a comparative disadvantage they will face, in being seen as a viable profitable avenue for investment. In general, larger investments imply faster access to debt for the companies and banks who are at the receiving end of this funding, resulting in higher yields.

Some of the challenges faced by Green Bonds in the Indian market are as follows –

Higher Costs:

The cost of issuing Green Bonds has remained higher than that of other bonds in India. This can be attributed to the lack of a national reporting and verification platform for tracking climate finance, lack of coordination between investment and environmental policies and the insufficiency of policy and benefits framework at the national and state level[7].

Shorter tenure, uncertain returns:

Green Bonds in India have a shorter tenure of approximately 10 years while the tenure of a general loan is of a minimum of 13 years. Furthermore, green projects often end up taking more time to showcase returns.

Lack of credit ratings for green bond market:

There is a lack of credit ratings for Green Bonds or Green Projects that ends up affecting the creditworthiness of such projects.


There have been several instances wherein the proceeds of Green Bonds have been used in projects that in reality have a negligible (or sometimes even negative!) impact on the environment. This is known as “green washing”, and makes the whole point of issuing Green Bonds redundant.


While the Indian government has been proactive in defining and regulating the Green Bond market in India, there are certain steps that need to be taken globally, in order to overcome the challenges that exist.

For instance, it is extremely important to align international and domestic guidelines and standards for Green Bonds, in order to establish a standardised market for these instruments.

It is also important to have a standard global definition of what is considered a ‘green’ investment’ – for tax considerations as well as to avoid greenwashing.

Since Green Bonds are themselves a relatively new concept, it is imperative to spread knowledge on the advantages, as well as the procedures and ancillary information, in relation to Green Bonds. Creating awareness would help in addressing the institutional barriers to entry, into this market.

[1] “Green Bonds And Greener Environment: Are They Linked?”. Downtoearth.Org.In, 2021.

[2] “NTPC Lists World’s First Green Masala Bond By An Indian Issuer On London Stock Exchange”. London Stock Exchange Group, 2021.

[3] “International Platform On Sustainable Finance”. European Commission – European Commission, 2021.

[4] “SEBI | Disclosure Requirements For Issuance And Listing Of Green Debt Securities”. Sebi.Gov.In, 2021.

[5] “Reserve Bank Of India – Notifications”. Rbi.Org.In, 2021.

[6] “Green Finance In India: Progress And Challenges*”. Rbidocs.Rbi.Org.In, 2021.

[7] Supra

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