State of Green Bonds in India

Abhirup Ghosh

ghosh.abhirup92@gmail.com

Background
Green Bonds or Climate Bonds have gained popularity over the last few years worldwide.
These are like any other bonds, except that the funds raised through these are ear-marked for
projects which are linked to protection of environment. Though the terms Climate Bonds and
Green Bonds are used interchangeably, the thin line of difference between the two was
brought out by Mackenzie and Ascui in a paper on climate change 1 which states the
following:

The idea of a climate bond is an extension of the green bond concept. Green bonds
are issued by a government or corporate entity in order to raise the finance for an
environmental project. The issuing entity guarantees to repay the bond over a certain
period of time, plus either a fixed or variable rate of return.

Climate bonds would be issued by governments to raise finance for investments in

emission reduction or climate change adaptation. They could be guaranteed by
developed country governments to minimize the risk for investors and maximize their
capacity to raise climate finance. They could be repaid out of general taxation,
overseas development assistance, proceeds from auctioning emission allowances in
cap-and-trade schemes, returns on investment of some of the bond proceeds in
lowcarbon technologies, the sale of carbon credits under a post-2012 climate change
agreement, or a combination of these. [Emphasis supplied]

Green bonds were issued for the first time in 2007 by the European Investment Bank and the
World Bank2. In the initial years these were utilised by development banks and the trend
continued until 2013 when even players from the corporate sector forayed into the market.
Though in the beginning years (2007-2012), the concept struggled to make a mark, but with
the entrance of corporate players in 2013, the market started growing in manifolds. The
Figure 1 below shows the volume of issuance of Green Bonds across the globe since its
inception in 2007.

1
http://www.research.ed.ac.uk/portal/files/14034350/Investor_Leadership_on_Climate_Change.pdf last visited
on 4th January, 2017
2
https://www.climatebonds.net/market/history last visited on 4th January, 2017

Electronic copy available at: https://ssrn.com/abstract=2894278

 Volume of issuance of Green Bonds - Worldwide
Amount in USD Billion
120
100
100
81
80

60
42.2
36.6
40

20 10.99
0.81 0.91 4 1.19 3.1
0.41
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

Figure 1: Volume of issuance of Green Bonds – Worldwide [2007 – 2017E]

Source: SEBI Consultative Paper3, Climate Bonds Initiative4

As is evident from the above figure, the market, during the period from 2007 to 2012, could
hardly show any spark, but in 2013 alone, the market became three times the size and
thereafter has continued to project steady growth. During the last year, 2016, the total
volumes reached USD 81 billion which 100 times the volume of issuance in the year of
introduction. Therefore, it can be said the global market for green bonds has grown 100 times
over a period of 10 years. The market is expected to reach the USD 100 billion mark in 2017
itself.

State of Climate Bonds in India

Climate Bonds or Green Bonds were issued for the first time in India by Yes Bank in
February 2015; the size of the issue was Rs. 1000 crore with a tenure of 10 years and the
proceeds of the issues were earmarked for the utilisation towards funding of renewable
energy projects like solar, wind or biomass. In quick succession, there were several other
issuances of Green Bonds in the country by Export Import Bank of India, CLP Wind Farms,
ReNew Power Ventures, IDBI Bank in the same year itself.

The increasing popularity of Green Bonds in India inspired the capital market regulator,
Securities and Exchange Board of India to create a more enabling environment for Green
Bonds in the country and it came out with a set of regulations to govern these instruments in
2016, the same has been discussed at length below.

3
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1449143298693.pdf last visited on 4th January, 2017
4
http://www.climatebonds.net/ last visited on 4th January, 2017

Electronic copy available at: https://ssrn.com/abstract=2894278

Green Bonds in India is doing pretty well and in the very first year, the Indian market
reported an overall volume of USD 1.1 billion5 and in the very next year, 2016, with a
volume of USD 2.7 billion, the country was ranked 7th in terms of issuance of Green Bonds.
The following figure shows the position of India among the Top 10 issuers of Green Bonds in
2016.

Top 10 issuers of Green Bonds in 2016

Amount in USD Billion

30

25

20

15

10

5 2.7

Figure 2: Issuances by Top 10 countries in 2016

Source: Bonds and Climate Change – The State of the Market India 20166

A list of issuances of Green Bonds in India has been provided below.

Date Issuer Amount Purpose

February 2015 Yes Bank INR 10 billion Renewable energy
March 2015 EXIM Bank USD 500 million Eligible green projects in
Bangladesh and Sri Lanka

August 2015 Yes Bank INR 3.1 billion Renewable energy

September 2015 CLP India INR 6 billion Renewable energy
November 2015 IDBI Bank USD 350 million Renewable energy
January 2016 IREDA INR 10 billion Renewable energy
February 2016 Hero Future Energies INR 3 billion Renewable energy

5
http://www.energetica-
india.net/download.php?seccion=articles&archivo=y0Ki63jtOdwGAkjPFOU5NnEwwdyN9mLIJGszOLlVLK5
bQIwQC0Pp.pdf last visited on 4th January, 2017
6
https://www.climatebonds.net/files/files/-CBI%20India%20SotM%202016%20Web%20version.pdf last visited
on 4th January, 2017
May 2016 PNB Housing Finance INR 5 billion Low carbon buildings

June 2016 Axis Bank USD 500 million Renewable energy, low carbon
buildings and transport

August 2016 ReNew Power INR 5 billion Renewable energy

August 2016 NTPC INR 20 billion Renewable energy
August 2016 Greenko USD 500 million Renewable energy
September 2016 Yes Bank INR 3.3 billion Renewable energy

Table 1: Green Bonds Issuances in India (Till September, 2016)

Source: SEBI Consultative Paper7, Council on Energy, Environment and Water8

Regulatory aspects of Climate Bonds in India

In terms of regulations, internationally there are no set guidelines for issuance of Green
Bonds; however, the International Capital Markets Association had issued a set of voluntary
guidelines in 20149 which was thereafter updated on 201510 and 201611, known as Green
Bonds Principles (GBP). The GBP has four principle components –

a. Use of Proceeds
b. Process of Project Evaluation and Selection
c. Management of Proceeds
d. Reporting

Most of the countries across the globe do not have any mandatory guidelines for Green
Bonds to follow, except for China, India France. Among the exceptions, China was the first
country to devise guidelines for issuance of Green Bonds in December 201512.

In India, the Securities and Exchange Board of India had come out with a consultation paper
for devising a set of guidelines for issuance and listing of Green Bonds in India on 3 rd
December, 201513, which was open for public comments till 18th December, 2016. It was
observed that the existing framework for issuance of debt securities, SEBI (Issue and Listing
of Debt Securities) Regulations, 2008, were enough to cover issuance of Green Bonds as

7
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1449143298693.pdf last visited on 4th January, 2017
8
http://ceew.in/pdf/CEEW%20NRDC%20-
%20Green%20Bonds%20Can%20Drive%20Clean%20Energy%20Deployment%20%20-
%203%20May%202016.pdf last visited on 4th January, 2017
9
https://www.ceres.org/resources/reports/green-bond-principles-2014-voluntary-process-guidelines-for-issuing-
green-bonds/view last visited on 5th January, 2017
10
http://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/GBP_2015_27-March.pdf last visited
on 5th January, 2017
11
http://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/GBP-2016-Final-16-June-2016.pdf last
visited on 5th January, 2017
12
http://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/PBOC-Announcement-No-39-2015.pdf
last visited on 5th January, 2017
13
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1449143298693.pdf last visited on 5th January, 2017
well, however, the capital market regulator wanted to increase the transparency and therefore,
wanted to prescribe additional details to be disclosed in the offer documents.

The SEBI approved the final memorandum in its board meeting on January, 2016 14; the final
guidelines in this regard are yet to be notified by the SEBI. The highlights of the
memorandum have been provided below:

 The structure of the memorandum is largely in line with the structure of GBP;
 Definition of Green Bonds: The definition of the term “Green Bonds” have been kept
open and the document states that SEBI will make case-to-case evaluations to determine
what qualifies to be Green Bonds. The SEBI has also placed reliance on the already
existing voluntary guidelines for issuance of Green Bonds for the meaning of Green
Bonds.
 External review of the terms: Carrying out an external review of the credentials of the
issuance of Green Bonds is optional and not mandatory.
 Monitoring the end-use of the proceeds: The issuers will have to disclose the methods in
which they will monitor the end-use of the proceeds of issuance of Green Bonds.
 Reporting: The issuers will have to disclose the use of proceeds and list of projects to
which green bond proceeds have been allocated in the annual report/periodical filings
made to the stock exchanges.

Conclusion
Just within two years from the first issuance of the Green Bonds in India, the country has
already walked a long path. Green Bonds in India are believed to have a great potential and
are being looked upon as a key tool to help raise the financing needs to meet the targets set by
India’s Intended Nationally Determined Contribution15 (INDC), which established for COP21
- essentially India's climate change action plan. It is estimated that a total of USD 2.5 trillion
will be required to meet India’s climate change action plans as contemplated by the INDC.

Looking at the performance of the Green Bonds market in India, it is expected that the Green
Bonds will play a very important role to shape the path to reach the humongous target.

14
http://www.sebi.gov.in/cms/sebi_data/boardmeeting/1453349548574-a.pdf last visited on 5th January, 2017
15
http://www4.unfccc.int/submissions/INDC/Published%20Documents/India/1/INDIA%20INDC%20TO%20U
NFCCC.pdf last visited on 5th January, 2017