India has a re-rethink on green bonds. And a new strategy.
Subscribe to enjoy similar stories. New Delhi: India’s green financing push could gain new momentum this financial year, with the government exploring a plan to increase its ₹25,342.31 crore target for issuing sovereign green bonds, two people said. This suggests a turnaround in the government’s thinking from a few months earlier, when it was considering a plan to fall back on conventional government securities and other debt instruments for green financing as green bonds have delivered only modest returns.
Green bonds, a type of fixed-income investment, are used to finance projects with positive environmental impacts. The government’s plan to increase its 2025-26 target for issuing sovereign green bonds will depend on India’s so-called greenium, or green premium, landscape, the two people mentioned above said, speaking on condition of anonymity. Greenium is the difference between the yield or returns investors receive on a green bond versus a similar conventional bond.
The yield on a green bond is lower due to investors’ willingness to accept lower returns in exchange for the perceived benefits of investing in a green instrument. While many developed markets achieve a greenium of 3-8 basis points over conventional bonds, in India this has been limited to 2-3 bps. One basis point is a hundredth of a percentage point.
After its earlier hesitance, the government anticipates a higher green premium this fiscal year, driven by stronger investor interest in sustainable investments, policy initiatives to boost green financing, and the need to fund climate-related projects and infrastructure. However, if actual demand falls short, the government may fall back on conventional bonds for green financing. Also read | Green bonds
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