Green Bond: Things You Must Know

 Introduction

A green bond is a debt instrument issued by an entity like any other bond (with subtle differences) to raise funds from investors

About Green Bonds

  • Initially, green bonds were issued by World Bank, multilateral organizations and few nations from 2007
  • Green bonds are pioneered by development banks in few nations
  • Green bonds is a niche product till 2012
  • Green bonds are focused to Environment, Social and Governance (ESG) projects
  • There is the double scope of environment benefit and development in green bonds
  • Green bond concept is open to corporate from 2016 in India
  • It is a new concept with regulations and guidelines still in the initial stages

Nodal Agency

  • Securities and Exchange Board of India (SEBI) is the nodal agency
  • SEBI released the green bond concept paper on December 2015
  • SEBI frames the guidelines regarding issuance of green bonds

Difference between Regular bond and Green bond

  • Green bond is issued to finance only green projects
  • Green bond issuer explicitly states that the fund raised will be used for environmental benefit activities like renewable energy, solar projects etc
  • Green bonds are being used based on market practices
  • Issuer can price Green bonds at a far better rate than the regular bonds due to the environmental benefit feature

Benefits of Green bonds

  • Green bonds help to increase the reputation of the issuer
  • Issuer will get positive publicity
  • Green bonds develop a commitment among the corporate about sustainability and development of the environment
  • Green bonds will give an international experience
  • Positive public relations will be enhanced
  • New set of investors will come in to the fray with the introduction of green bonds
  • Issuer can get access to a diversified set of investors other than business oriented clients or investors
  • Issuer will get a pricing advantage in case of green bonds
  • The current scenario of global warming and climate change will attract global investors to invest in green bonds in large numbers
  • The cost of funding for the green projects will be lowered with the expected increasing number of investors in the green bonds

Conclusion

  • Green bonds is relatively a new concept to Indian market
  • SEBI must frame guidelines for issuing green bonds to prevent the misuse of funds raised through green bonds
  • SEBI must establish a monitoring mechanism to check the usage of the green bonds
  • World nations are responding in a positive manner to the climate change scenario with the signing of the Conference of Parties (COP) in Rio by majority of the nations
  • GOI has placed special emphasis on renewable energy projects especially on solar power generation making it conducive for green projects
  • The reception of green bonds in India is on the positive side
  • Overall, Green projects and green bonds offer huge opportunities in future for corporate for the overall development of the nation and the world as a whole
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