Green Bonds

What are Green Bonds

These bonds are structured like ordinary bonds but will invest in only those companies and projects that help in reducing carbon footprint

• Projects they invest in: Renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management and climate change adaptation.
• Special dispensations: No special dispensations allowed, apart from them being under RBI’s infrastructure bond category. Do not attract statutory requirements such as CRR & SLR
• Funds raised by these bonds globally: $12.9-billion raised during the second quarter of 2015, bringing year-to-date totals to roughly $19.2 billion. Last year, fund-raising globally touched a record high of $37 billion.
• Indian issuances and fund-raising: YES Bank issued the first-ever green infra bonds in February this year. It raised Rs 315 crore through the issue of green infra bonds to IFC on a private placement basis. Exim Bank raised Rs 3,330 crore in March via green bond sale.
• Green bonds are an excellent way to secure large amounts of capital to support environmental investments that may not otherwise be available, or that may be uneconomic using more expensive capital. Green bonds are well suited for large-scale sustainability projects such as wind and solar development, which often require capital investment ahead of revenues, and which generate modest revenue over a longer investment horizon.
• Green Bonds provide companies or government with a chance to brand themselves as forward thinking, innovative, and sustainable.

Why green bonds are important for India: India has embarked on an ambitious target of building 175 gigawatt of renewable energy capacity by 2022, from just over 30 gigawatt now. This requires a massive $200 billion in funding. This isn’t easy. Higher interest rates and unattractive terms under which debt is available in India raise the cost of renewable energy by 24-32 per cent compared to the U.S. and Europe. India has big goals in terms of renewable energy installations, but a big hurdle has been financing and the cost of financing.

IDBI Bank has become the first commercial state-owned bank to raise $350 million via selling green bonds, which are used for clean energy projects. Bonds were priced at 4.26% (fixed rate) after adding a mark-up or spread of 255 basis points on five-year US Treasury now at 71%. But, the bank has converted those securities into floating rate, and they are offering 3.22%. Bond will be of five-year maturity. This is a part of the bank’s medium-term-note programme, set at $5 billion over next few years.

By: Parveen bansal