Centre may shift to conventional securities for green financing, moving away from green bonds

Subscribe to enjoy similar stories. New Delhi: The government may move away from green bonds to fall back on conventional government securities and other debt instruments for green financing in the coming years, as these so-called 'climate' and 'sustainable' bonds have delivered only modest returns, two people aware of the matter told Mint.

While, many developed markets achieve a greenium – or green premium – of 3-8 basis points over conventional bonds in India, this has been limited to just 2 to 3 bps at most, the first person mentioned above said. One basis point is a hundredth of a percentage point.

Greenium is the difference between the yield or the return investors receive on a green bond and that from a similar conventional bond. It's the amount by which the yield on the green bond is lower due to investors' willingness to accept lower returns in exchange for the perceived benefits of investing in a green instrument.

Green bonds have found takers in advanced economies like Germany, the European Union, China and Singapore, where the greenium has been 3-8 bps due to robust policy support, clear regulatory mandates, and, in some cases, tax incentives. “If green bonds don’t prove effective in the next few years, the government will continue investing in green initiatives but won’t necessarily raise funds under the green bond label and use the conventional (government securities) route (for raising funds) for green investments," the person mentioned above said, requesting anonymity.