Green Bond and Sustainable Finance in India: A Guide

Overview

Green bonds and sustainable finance instruments are designed to fund projects with positive environmental or climate benefits. In India, this market has grown rapidly following SEBI’s introduction of the Green Debt Securities framework and the government’s commitment to Net Zero by 2070 and 500 GW of renewable energy by 2030.

SEBI’s circular on green and blue bonds provides the regulatory framework for issuances in India. It requires issuers to define the use of proceeds, appoint an independent verifier, and report on the environmental impact of funded projects annually. The framework covers projects in renewable energy, clean transportation, sustainable water management, green buildings, biodiversity conservation and climate change adaptation.

India’s green bond market has seen landmark issuances from the Government of India (Sovereign Green Bonds issued in January 2023), NTPC, Power Grid Corporation, Greenko, ReNew Power and Indian Renewable Energy Development Agency (IREDA). International green bond investors including global ESG funds and development finance institutions like IFC, ADB and the World Bank group are active buyers of Indian green paper.

Interest Rates

Green bonds often carry a slight yield advantage called a greenium, where investors accept a marginally lower yield in exchange for the green label. However, the greenium in India is still small compared to European markets.

Issuer Type	Instrument	Yield / Rate (2024)
Government of India	Sovereign Green Bond	7.10% – 7.30% p.a.
PSU (NTPC / IREDA)	Green NCD	7.50% – 8.50% p.a.
Private Corporate	Green NCD / ECB	8.50% – 10.50% p.a.
NBFC / HFC	Green Social Bond	9.00% – 11.00% p.a.

For corporates raising green bonds as ECBs from international markets, the effective cost after hedging can be competitive with domestic rates, especially given the premium international ESG investors place on Indian renewable energy assets.

Eligibility

• Issuer must be a listed company or eligible entity under SEBI guidelines for debt securities
• Projects funded must fall within the approved green project categories defined by SEBI and international standards like GBP (Green Bond Principles) and CBI (Climate Bonds Initiative)
• An independent third-party verifier or second party opinion (SPO) provider must certify the green nature of projects
• Use-of-proceeds reporting and impact reporting must be committed to annually
• For sovereign green bonds, projects are selected from the Union Budget’s capital expenditure in green sectors

Documents Required

• Green Bond Framework document prepared by the issuer
• Second Party Opinion from a recognised ESG verifier
• Prospectus or placement memorandum filed with SEBI (for public issuances)
• Board resolution approving green bond issuance and framework
• Project list with estimated green impact metrics
• Annual impact reporting template and commitment

Application Process

Step 1: Develop a Green Bond Framework

The issuer prepares a Green Bond Framework aligned with SEBI guidelines and GBP or CBI standards. This defines eligible project categories, use-of-proceeds governance, allocation reporting and impact reporting.

Step 2: Get Second Party Opinion

An independent SPO provider reviews the framework and certifies its alignment with green standards. CICERO, Sustainalytics, DNV and CRISIL ESG Ratings are among the providers active in India.

Step 3: Regulatory Filing

For public issuances, file the offer document with SEBI. For private placements, issue to QIBs with appropriate disclosures. List the bond on BSE or NSE’s debt segment.

Step 4: Investor Roadshow

Conduct a roadshow to educate domestic and international ESG investors about the issuer’s green strategy and the specific projects to be funded.

Step 5: Issuance and Reporting

Issue the bonds, collect proceeds and deploy in eligible green projects. Report annually on fund allocation and measurable green impact like CO2 avoided, renewable energy capacity added or water saved.

Frequently Asked Questions

What is a greenium?

A greenium is the yield discount that investors accept for a green bond compared to an equivalent conventional bond from the same issuer. This discount reflects ESG investors’ preference for labelled green assets and the growing regulatory push toward sustainable investing.

Can MSMEs issue green bonds?

Directly issuing public green bonds is complex for MSMEs due to regulatory requirements. However, MSMEs can access green finance through green loans from banks, SIDBI’s green loan products, or by being part of supply chain finance schemes offered by large corporates under their sustainability frameworks.

Are sovereign green bonds safe for retail investors?

Yes. India’s Sovereign Green Bonds (SGrBs) carry the same credit quality as regular government securities. They are backed by the Government of India and carry zero credit risk. Retail investors can access them through the Reserve Bank of India’s Retail Direct portal.