Govt may raise at least ₹10,000 crore in next phase of sovereign green bonds
- The government’s plan to raise ₹20,000-25,000 crore overall in 2024-25 through green bonds is a significant step towards financing its various clean energy and sustainability initiatives. Currently, the private sector accounts for a majority of the green bonds issued in India.
NEW DELHI : New Delhi: The Union government plans to raise at least ₹10,000 crore through sovereign green bonds between October and March as it ratchets up efforts to secure funds for its various sustainability initiatives.
Overall, the government is looking to issue sovereign green bonds worth ₹20,000-25,000 crore as part of its borrowing schedule for 2024-25 to fund its climate mitigation initiatives.
The government earlier this year notified its plans to raise ₹12,000 crore through green bonds between April and September. To reach its full-year target, it may even raise up to ₹15,000 crore in the second half of the financial year, two officials said, speaking on condition of anonymity.
The quantum of funds raised through green bonds in 2024-25 is likely to exceed the ₹20,000 crore raised in the previous financial year, one of them said.
- The government plans to raise more funds through green bonds this financial year, reflecting a strong commitment to sustainable initiatives.
- The increased issuance indicates growing investor interest in green finance, although challenges remain in terms of pricing and differentiation from conventional bonds.
- Proceeds from the green bonds will be allocated to various climate and environmental projects, contributing to India's ambitious clean energy goals.
The government’s plan to raise up to ₹25,000 crore through sovereign green bonds this financial year is a significant step towards financing the country’s various clean and green energy initiatives, experts said, adding that its success will depend on investor perception and market dynamics.
“The government aims to price these green bonds at a rate lower than conventional government securities, banking on the appeal of their environmental benefits," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, a financial advisory firm.
“This pricing strategy, known as ‘greenium’, reflects the premium investors might be willing to pay for green bonds due to their positive environmental impact."
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Green bonds offers investors an opportunity to align their portfolios with sustainable investment goals while potentially enjoying favourable returns, Srinivasan added.
He, however, warned that traditional domestic investors often do not differentiate between conventional and green bonds, and the lack of a separate fund for sustainability in India may be a hindrance to the ‘greenium’.
A finance ministry spokesperson didn’t respond to an emailed query.
An ambitious green target
India has set ambitious clean and green energy targets. It aims to achieve 500 GW of non-fossil fuel energy capacity by 2030, adding 50 GW of green energy capacity annually, and reach net-zero emissions by 2070. Currently, India has an installed renewable energy capacity of 180.79 GW.
Green bonds address wider funding requirements of India’s various environmental and climate-related initiatives. Proceeds from the bond issues will be allocated to the green schemes of central ministries and departments such as new and renewable energy, environment, forests and climate change, housing and urban affairs, and railways.
Funds raised by selling green bonds can’t be utilised for projects related to fossil fuel extraction, production or distribution, or nuclear power.
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“The Centre’s plans to raise money through green bonds for the second half will be released in the upcoming borrowing calendar, next quarter," said one of the officials mentioned above. “The borrowing through green bonds during the second half is likely to be more than in the first if the cost of borrowing is not higher than government securities."
In 2023-24, the government sold green bonds worth ₹5,000 crore with a tenure of five years in November, followed by ₹10,000 crore worth of bonds with a tenure of 30 years in two tranches of ₹5,000 crore each in January and February. It sold bonds worth another ₹5,000 crore in March.
In 2022-23, the first year when India issued sovereign green bonds, the government raised ₹16,000 crore.
According to a recent report by The Energy and Resources Institute titled ‘Accelerating the growth of green bonds in India’, the private sector has largely led the issuance of green bonds in India, covering as much as 84% of the total share in 2023.
“Besides, in terms of project financing through green bonds in India, the dominant share has been directed to the energy sector—hinting at a concentration on clean energy financing and an unexplored potential for financing sustainable initiatives in other sectors, despite the regulatory leeway to do so," the research institute said in its report.
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