What is Green Bond?

Green bond is now emerging as an attractive instrument for availing financial resources for funding greener projects. Specifically, green bonds are bonds issued to mobilize funds for Green energy projects.

According to SEBI “A green bond is like any other bond where a debt instrument is issued by an entity for raising funds from investors. However what differentiates a Green bond from other bonds is that the proceeds of a Green Bond offering are ‘ear-marked’ for use towards financing ‘green’ projects.” Proceeds from ‘green’ projects, are used to finance assets or business activities with an environmental benefit, such as renewable energy, low carbon transport, sustainable water management, climate change adaptation, energy efficiency, sustainable waste management, biodiversity conservation etc.

Why Green bonds are important for India?

Green bonds are important revenue fund raising option in India to organize funds for financing the country’s ambitious renewable energy target of 175 GW by 2022.  Nearly $200 billion is required to finance the renewable energy sector. Higher cost of borrowing and rising interest rate in the domestic market are tempting financial institutions to issue dollar denominated green bonds in overseas markets.

In March 2015, the EXIM Bank issued $500 million worth of green bonds in overseas at a coupon rate of 2.75%. It was subscribed by 3.2 times showing tremendous interest among investors. Proceeds from green bonds are given by EXIM Bank to companies to finance renewable energy projects.

Several international institutions like the World Bank are issuing green bonds to finance environment friendly projects. International financial institutions, governments and other agencies mobilized around $39 billion in 2014 through the issue of green bonds.

An important feature of green bonds is that the responsibility of repayment is with the issuer and not with the firm that is utilizing the funds in green projects. Higher credibility of the issuer like the EXIM Bank helps to mobilize big amounts through bonds at lower interest rate.