India is testing the waters of the slow global green bond market this month with its first offering, which hopes to generate $2 billion for sustainable projects.
Indian officials have made it plain they desire a sizeable “greenium” “For the sale to reduce the nation’s borrowing costs, sufficient foreign investors must purchase the debt denominated in rupees.
Last year marked the first decline in green bond sales in a decade, as monetary policy tightening impacted issuance and asset managers came under fire for alleged greenwashing. According to data provided by Bloomberg, companies and governments globally raised $863 billion in green, social, and sustainability-linked bonds in 2022, a 19% decrease from the record $1.1 trillion raised in 2021.
At least two governments have accessed the green bond market this year, with Hong Kong leading the way by selling the equivalent of $5.8 billion in three currencies. Ireland received orders totaling €35 billion ($37 billion) for the issuance of €3.5 billion in 20-year bonds.
According to persons familiar with the situation, India is putting its first sovereign green bond on the radar of some of its largest domestic asset managers, including state-run insurers and pension funds as well as overseas investors from Japan to the United Kingdom to stimulate demand.
“There could be a substantial amount of interest, particularly from domestic investors,” “Nicole Lim, fixed income ESG analyst at abrdn plc in Singapore, commented on the larger macro backdrop, with rates and inflation spiking.
The tables below provide context for India’s green bond and its relationship to the nation’s climate ambitions. India plans to auction off the debt on January 25 and February 9.
Market decline
Green bond issuance declined in 2022 for the first time since major fund managers became interested in the embryonic industry.
Green Mandates
India may be a late entrant to the green bond market in Asia, but outside of Europe, sovereign issuers remain a limited group. Despite the exchange rate concerns associated with a bond denominated in rupees, this could increase the bond’s allure to overseas investors with a green mandate.
Renewable Objectives
India, which relies on fossil fuels for more than half of its energy needs, must raise adequate funds at a reasonable price in order to achieve its renewable energy ambitions.
Adaptation Divide
In addition to expanding renewable power generation, the sale proceeds could be used to create infrastructure that is more resistant to rising temperatures and extreme weather. Globally, funding for climate adaptation has fallen far short of the 50/50 split between adaptation and mitigation that was stipulated in the 2015 Paris agreement. Mitigation tries to cut emissions.
Understated Market
Given the absence of domestic ESG debt funds, Indian corporate issuers have not always considered it worthwhile to obtain a green label for their debt. Establishing a clear benchmark with a sovereign bond and the potential increase in investor interest that could result could alter this situation.
More than $26 billion of this debt has been issued by Indian corporations, primarily for renewable energy projects.
