Green Bonds: All You Need to Know

Green bonds, like the traditional/standard bonds, are debt instruments that are used for raising funds. However, as the name suggests, these are specifically used for projects that are environment-friendly such as sustainable land, cleaner transport, renewable energy creation, etc.

Green Bonds in India

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Although the global green bond market emerged around 2007 itself, its advent in India was in 2015.

Private sector Yes Bank was the first Indian entity to raise funds through green bonds. In February 2015, it raised Rs. 1,000 crores from pension funds and mutual funds houses, insurance companies, as well as foreign portfolio investors for funding wind, solar, and biomass projects.

Following in the footsteps of the Yes Bank, the very next month Exim Bank raised $500 million from foreign investors through green bonds.

Why Does it Matter?

Green Bonds are new for India. However, they bear high significance for various reasons. One of these is to achieve the ambitious target of creating 175 gigawatts of renewable energy capacity by 2020 from the 30 gigawatts we have now.

According to the estimates, India will need an investment of about $200 billion to develop that kind of capacity. This will be raised by green bonds.

hy are Green Bonds so Lucrative?

The reason why green bonds are apt for the “green” projects is that they come at a lower interest rate than the standard loans offered by the commercial banks. Thus, for the independent power producers, they are a more affordable form of debt.

However, there is a downside to green bonds as well. In India, they have a tenor period of about 10 years, when the standard loan has the same as a minimum of 13 years on average.

The World Bank, European Investment Bank, and governments around the world are the biggest issuers of green bonds today.