Local green bond issuances are helping companies in India to raise money for eco-friendly projects that provide investors a responsible alternative
India has emerged as a good destination for investors wanting to put their money in projects with a low carbon footprint. The country now ranks 7th internationally for total green bond issuances amounting to USD 2.7 billion in October, most of which has been launched in 2016, according to a new report.
US holds pole position for issuing green bonds of worth USD 30 billion, while other countries that are ahead of India include France, China, Germany, the Netherlands and Sweden.
Green bond is a new debt instrument that raises money specifically for eco-friendly projects such as renewable energy, low carbon emissions, sustainable water use, clean transportation etc. The issuer gets the capital required for the project while the investor gets his fixed interest.
Indian issuers are demonstrating best practices by getting the bonds certified from an external body, according to the report titled Bonds and Climate 2016: India Edition. Certification by external parties has helped boost the confidence of international investors in the green credentials of the Indian green bond market.
Four out of seven bonds issued in 2016 were certified against the Climate Bonds Standard, with verification from KPMG, a consultancy, and Emergent Ventures India, a renewable energy consultant firm. One bond issue received a review from Sustainalytics, a researcher based in Canada.
Potential of green bonds
“A couple of years ago issuers weren’t sure whether to label their bonds as green. Today, issuers see the potential of green bonds, and see certification as a must-have,” said Gaurav Bhagat, Head, Capital Markets, Financial Institutions Group, South Asia, Standard Chartered Bank, a private lender.
The report was launched on October 24, coinciding with the first meeting of the new Indian Green Bonds Market Development Council. The Council is composed of a cross-section of senior representation from banking, finance, insurance, investment banks, stock exchanges and public and private sector companies.
A joint initiative of the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Climate Bonds Initiative, an international, investor-focused not-for-profit, the aim of the council is to bring together a critical mass of senior representatives drawn from the public and private sector to propose solutions towards the development of a green bonds market in India. The Council will draft a national blueprint and provide guidance to government on green finance directions and green bond market development.
“The formation of this Market Development Council is a positive step forward in developing the green finance sources and investment pipelines India needs to meet its national infrastructure and climate mitigation goals. Bringing together major participants is a crucial step in the right direction,” Sean Kidney, CEO, Climate Bonds Initiative, said in a statement.
“We are in touch with most of corporate issuers in the country and they are now primarily focused on the benefits green bonds bring to their bottom line, rather than the costs,” said Asish Sable, Senior Vice President and Group Head of Debt Capital Markets, SBI Capital Markets, the investment banking arm of State Bank of India, the country’s largest lender.
The report says that the Indian regulators are showing leadership by providing guidance and regulation to the market. In January 2016, the Securities and Exchange Board of India published its official green bond requirements for Indian issuers making India the second country (after China) to provide national level guidelines.
According to the trends mentioned in the report, 60% of Indian labelled green bonds’ proceeds are being allocated to renewable energy, helping the country reach its renewable energy targets.
It is estimated that approximately USD 2.5 trillion is required to meet India’s climate change mitigation targets by 2030 and approximately USD 1 trillion in investment in infrastructure every five years to satisfy the demand. And around half of the total investment is expected to come from the private sector, says the report.
Out of the total green bonds, over 17% is going to low carbon transportation and 14% to energy efficiency and green buildings. The report highlights that there is a huge potential for the growth and opportunities in climate-aligned bonds with “an additional universe of $15.7bn of unlabelled climate-aligned bonds” still outstanding. Unlabelled climate-aligned bonds are those that are not labelled as green but help in raising funds for projects that are aligned with climate adaptation or mitigation objectives.
Trends show that 79% of these unlabelled bonds are being allocated to low carbon transportation assets while 21% to renewable energy but mostly hydro.
The report also mentions some of the notable Indian green bonds such as the one issued by NTPC Ltd worth INR 20 billion to finance solar and wind power projects. NTPC is the India’s largest fossil fuel-based power utility and this was among the few bonds to finance green infrastructure from a fossil fuel-based balance sheet.
While ReNew Power’s INR 5 billion green bond issued in August was awarded a Climate Bonds Certification for its 90.3MW wind power project in Madhya Pradesh, wind energy developer Hero Future Energies was the first Indian company to issue a Certified Climate Bond.