What are Green Bonds in India?

Green Bonds in IndiaWhat are Green Bonds in India?

You might be hearing about Green Bonds in India recently. Federally qualified organizations or municipalities for the development of brown field sites issues Green Bonds which are a tax-exempt bond. Areas of land which are underutilized or have abandoned buildings or under developed buildings are called brown field sites. These brown field sites often contain low levels of industrial pollution. What are Green Bonds? Who can invest in Green Bonds in India? What projects quality for Green Bonds in India?

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About Green Bonds

Qualified organizations or municipalities can issue Green Bonds to develop brown field sites. These brown field sites generally contain less industrial pollution. To develop more eco friendly projects, Govt. of India has initied these Green Bond projects.  Green Bonds act as shorthand for sustainable design project bonds and qualified green building. Green Bonds are created to encourage the development and sustainability of brown field sites. When compared to comparable taxable bond the tax-exempt status makes the purchasing of Green Bonds a more attractive investment. Green Bonds are standard fixed income financial investments where the proceeds are only utilized for financing climate change related projects and programs.

What does it qualify for Green Bond status?

To quality for Green Bond status, the developing land must must take the form of any of the following.

1)     The development project must receive at least $5 million (Rs 33 Crores) from the municipality or state.

2)     75% of the developing building or land must be registered for LEED certification.

3)     The land or building must be at least one million square feet in size or 20 acres in size.

How does Governments of India plan on Green Bonds and their utilization?

Green Bonds are very important and attractive instrument for both private and public sector organizations to raise capital for projects that benefits and are in favour of the society and the climate.

The Indian government in 2015 reassured its support of renewable energy (RE) suppliers by rethinking on the generation capacity to 175 GW by 2022. In the absence of favourable financial conditions, achieving an additional capacity around 136 GW in the next seven years looks like a monumental challenge.  Until now for meeting its capital requirement the RE sector has relied heavily on sponsor equity and conventional lending organizations and according to media resources the target of 175 GW will need a huge investment of over $200 billion. The banks have, however, given priority to invest in more reliable and sustainable thermal power projects over the RE projects. Banks in order to avoid the RBI ruling from affecting their ongoing fund development and create new wealth pools for dedicated RE loans are relying more on raising funds by issuing Green Bonds.

What are SEBI guidelines about issuing Green Bonds in India?

The Security and Exchange Board of India (SEBI) a regulatory body in India has issued its final guidelines on the issuance of Green Bonds, deciding that the listing and issuance of Green Bonds shall be governed under SEBI (issue and listing of debt securities) regulations, 2008.

It has been made optional requirement by the board for independent third party reviewers for reviewing the pre-issuance and post-issuance process, which includes selection criteria as well as project evaluation.

The year 2015 was a very important year for the Green Bond market, in India as well as globally. The total issuance of labelled Green Bonds crossed over $40 billion market. Many private and state owned entities in India issued their first Green Bonds. Banks like EXIM and IDBI issued their first Green Bonds. In India YES bank was the first bank to issue Green Bonds.

Who can invest in Green Bonds in India?

SEBI has till date not specified the definition of what qualifies as green projects. As of now, large institutions are investing in Green Bonds. Soon, it may be available for smaller investors too.

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Recently issued Green Bonds in India

India entered a Green Bond market in the year 2015. In March 2015, the EXIM bank of India issued a five year, $500 million Green Bonds and in February 2015 YES bank encouraged India’s green infrastructure bond market by issuing the country’s first green infrastructure bond of $160 million. Given the immediate need of low-cost financing in India other banks and public sector organizations should seriously consider raising funds through Green Bonds as they will definitely help in speeding up infrastructure development activities and further country’s objective of realizing a low-carbon, climate and economy and to assure investors of their commitment towards carbon free projects the institutions can hire third party auditors that appraise projects on a regular basis.

I would be excited if these Green Bonds are available for individual investors too.

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Green Bonds in India


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