green bonds in India are specialized debt instruments that fund environmentally sustainable projects, supporting India’s net-zero emissions target by 2070. With green finance reaching ₹4.25 lakh crore in 2024, per CPI, Understanding these bond types is key for eco-conscious investors. What are the different types, and how can you invest? Let’s break it down.
Use of Proceeds Green Bonds:
The most common type of green bonds in India is the Use of Proceeds bond. The funds raised are earmarked exclusively for green projects such as solar farms, metro rail systems, or water conservation. These bonds must meet guidelines laid out by the SEBI under its Green Debt Securities framework. The issuer must also provide detailed disclosures, ensuring transparency for investors.
For example, Indian Railway Finance Corporation issued green bonds to fund electrification and reduce carbon emissions across railway networks. These bonds are ideal for investors who want direct exposure to specific climate-positive outcomes.
Green Revenue Bonds:
Unlike the previous type, green revenue bonds are secured only by the revenues generated from the green project itself. Therefore, investors carry slightly more risk, but returns may also be higher depending on project success. In India, this model is gaining traction in infrastructure projects like metro systems and wastewater treatment plants.
Municipal corporations have also started using this bond type for local sustainability efforts. Moreover, SEBI’s 2023 guidelines for green debt securities support wider adoption by ensuring proper disclosures and reporting.
Green Securitized Bonds:
Securitized green bonds are backed by a pool of green assets like solar loans or electric vehicle financing. These bonds help financial institutions convert illiquid green loans into tradeable securities, improving liquidity. In India, banks and NBFCs are gradually using this model to expand green lending portfolios. It enables broader investor participation while promoting cleaner technologies.
For instance, an NBFC funding rooftop solar installations might bundle those loans into a securitized green bond to raise more capital.
Sovereign Green Bonds:
In January 2023, India launched its first sovereign green bond, raising ₹8,000 crore to fund public green infrastructure. These bonds are issued by the government and often come with tax incentives or lower interest rates due to their high credit rating.
According to the IBEF, India plans to issue more sovereign green bonds to meet its commitment to achieve net-zero emissions by 2070. These bonds are ideal for risk-averse investors looking to support national climate action.
They also provide a benchmark for private issuers and improve market confidence in green investing.
Why Green Bonds Matter:
Green bonds in India offer dual benefits: financial returns and environmental impact. They attract ESG-conscious investors while helping India reduce carbon emissions and build climate resilience. In addition, they diversify funding sources for green initiatives—essential for India’s energy transition and urban development goals.
Conclusion:
As India commits to achieving net-zero emissions by 2070, understanding the types of green bonds in India becomes vital for both issuers and investors. These instruments not only help fund climate solutions but also offer attractive returns backed by a growing policy framework. Ready to fund a greener future? Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Green Bonds here – https://www.investopedia.com/green-bond.asp