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Green Bonds

  Feb 17, 2021

Green Bonds

Q Why is it in News? 

As per a recent study by the Reserve Bank of India (RBI), the cost of issuing green bonds has generally remained higher than other bonds in India, largely due to asymmetric information.

Q What are Green Bonds? 

A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).

Bonds traditionally paid a fixed interest rate (coupon) to investors.

A green bond is a debt instrument with which capital is being raised to fund ‘green’ projects, which typically include those relating to renewable energy, clean transportation, sustainable water management etc.

Q When were Green Bonds Launched?  

In 2007, green bonds were launched by few development banks such as the European Investment Bank and the World Bank. Subsequently, in 2013, corporates too started participating, which led to its overall growth.

Q Which Agency regulates Green Bonds in India? 

The Securities and Exchange Board of India (SEBI) has put in place disclosure norms for issuance and listing of green bonds.

Q What are the benefits of Green Bonds? 

Q What are some details of RBI’s Recent Study?

Current Share:

Challenges:

Suggestion in RBI study:

Developing a better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in this segment.

Q What are other challenges with Green Bonds? 

 Q How can these challenges be addressed? 

One of the foremost requirements is to harmonise international and domestic guidelines and standards for green bonds to develop a robust green bond market.

Appropriate capacity building efforts for issuers in emerging markets to spread knowledge on the benefits and related processes and procedures pertaining to green bonds, would help in addressing the institutional barriers to entry into this market.

In the context of green bonds, strategic public sector investment could help in attracting private investment as well as inspire investor confidence in the green bond market overall.