THE GREEN WALL

GREEN BONDS IN INDIA ARE TARGETED AT INSTITUTIONAL INVESTORS. THE HIGH TICKET SIZE MAKES DIRECT ACCESS DIFFICULT FOR MOST RETAIL INVESTORS

- TEENA JAIN KAUSHAL

AS CONCERNS AROUND climate change intensify, investors are increasingly looking for opportunities that allow them to support the environment without compromising on returns. Among various financial instruments, green bonds have emerged as a distinct avenue to direct capital toward environmentally sustainable projects. There are also mutual funds that invest in companies that meet environmental, social, and governance (ESG) criteria, providing a broader range of sustainable investment opportunities.

Green bonds carved out a unique space as far as investing in the green economy was concerned. However, high entry barriers and modest returns have led to other investing instruments gaining traction of late. It begs the question then, are green bonds worth investing in?

UNDERSTANDING GREEN BONDS

At their core, green bonds are like traditional bonds. They are debt instruments issued by corporations, financial institutions, or the government to raise money from investors, with the promise of repayment at maturity along with periodic interest.

However, what distinguishes a green bond is the specific use of proceeds, which must be allocated exclusively to environmentally beneficial projects. These could include investments in renewable energy, clean transportation, energy efficiency, biodiversity conservation, or climate change mitigation.

“Green bonds are similar to traditional bonds and differ only in their purpose and use of proceeds,” says Niranjan Banodkar, Group CFO at YES Bank. “Compared to traditional bonds, green bonds provide investors with an added opportunity to generate positive environmental impact out of their investments.”

The range of sustainable financing tools has expanded since 2017, when the Securities and Exchange Board of India (Sebi) formalised guidelines for issuing and listing green debt securities for the first time.