CDKN’s Senior Advisor for India, Mihir Bhatt, and Head of the All India Disaster Mitigation Institute watches India expand its participation in global green bond markets and highlights the striking potential of this investment vehicle for driving green growth.

India is emerging as a significant green bond market. The Government of India has embarked on an ambitious target of building 175 gigawatts of renewable energy capacity by year 2022, from just over 30 gigawatts now. This ambitious target needs ambitious investments.

It is estimated that this leap towards renewable energy will require funding of US$200 billion. Raising these sorts of amounts requires the involvement of the international capital markets via innovative instruments like green bonds.

In January 2016, Securities Exchange Board of India (SEBI) rolled out a path breaking concept paper defining the guidelines for issuance and listing of Green Bonds, as increasing number of financial and banking institutions in India have shown interest in launching green bonds to mobilise resources to support wide range of projects related to renewable energy and climate change adaptation and mitigation. In short, financing climate compatible economic growth by private investment has started in India.

In 2015, YES BANK, India’s fourth largest Private Sector Bank has successfully issued India’s first ever green infrastructure bonds raising an amount of INR 1,000 crores (US$ 14,92,53,731). The amount raised is being used by YES BANK to finance green infrastructure projects in renewable energy including solar power, wind power, biomass, and small hydropower projects. The list is expanding. The bank has made a commitment of supporting 5,000 MW clean energy projects in the country by 2020.

After YES BANK, another leading banking institution, the Exim Bank of India, in March 2015, issued a five-year $500 million green bond, which is India’s first dollar-denominated green bond. The issue was subscribed nearly 3.2 times. And more investors are waiting. The Exim Bank has said it would use the net proceeds to fund eligible green projects in countries including Bangladesh and Sri Lanka to start with. Colombia may not be too far on the list.

As per the financial industry sources, the scope of improvement in Indian green bond market is expanding rapidly if the policy initiatives supplemented with tax benefits, interest subsidies and capital relief to the issuers as well as investors. As the green bonds market continues to develop, the issuer and investor interest is expected to increase in the coming years.

“Green bonds have opened a new finance flow that will be essential to confronting climate change impact,” said Inessa Tolokonnikova, IFC’s Financial Institutions Group Manager for South Asia, based in Mumbai. “IFC’s investments in programs like YES BANK’s green infrastructure bonds, will also encourage issuers in other markets to issue similar bonds and support greater resources for climate change finance.”

Sean Kidney, CEO of the Climate Bonds Initiative recently remarked how the Green Bonds market has increased worldwide  and is likely to increase even more as more and more investors are looking for more sustainable and greener investments. The importance of bridging the gap between investors, public authorities and the private companies to start structuring green bonds.  The technical know how and lessons learned from YES BANK and Exim Bank will be useful in bridging the gap. What may be needed is broker of lessons, economic development and implementation focus, longer term commitment, and filling in capability gap.

Axis Bank Green Bond listed at LSE

While the capability gap narrows, India’s Axis Bank has launched India’s first internationally-listed and certified green bond and raised $500 million to finance climate change projects and solutions around the world.

The bond certified by the Climate Bonds Standards Board (CBSB) has been listed in London Stock Exchange (LSE).

The Axis Bank will utilise the bond proceeds to promote green energy in urban and rural areas, transportation and what is called 'green-blue infrastructure' projects in India and abroad. In India, the Government of Gujarat - among other states - has launched an attractive Solar Roof Top green energy pilot that is attracting individual citizens' attention. Similarly in Tamil Nadu, the city of Madurai's 'green-blue infrastructure' investment plans are attracting investor attention.

The Axis Bank bond issue is the first ever US dollar green bond by an Indian private sector company and the first ever 144A green bond from India, with 21 per cent of the investor base being 'green' investors.

The LSE has emerged as the preferred launch pad for financial institutions to mobilise resources through issuance of green bonds. And Indian business have noticed this development for future use. For instance, in October 2015, the Agriculture Bank of China issued RMB and dollar green bonds with total value of $ 1 billion on the LSE. To date, there are 31 green bonds on LSE including those denominated in Rupees and Renminbi, which have raised over $ 7 billion. In the current year, six new green bonds have raised $ 2 billion in 2016. Estimates suggest rapidly increasing demand for green bonds.

According to the Axis Bank, it’s a very proud moment for India, as Axis Bank is not only India’s first internationally listed green bond issuer, but also India’s first green bond to be certified and truly aligned with supporting environment-friendly development.

The encouraging response to Axis Bank’s successful green bond issuance, attractively priced, is reflective of the realisation and recognition of the global need to encourage and support eco-friendly sustainable development in and by India.

This success is also reflective of Axis Bank’s confirmed commitment to supporting green ventures in overall infrastructure development in India with business in India and worldwide. What is needed is capacity to design and develop projects using global knowledge and technical know how to attract such investments at subnational level.

Investment marks progress to meeting India’s national climate commitments

In its Nationally Determined Contribution (NDC) document, the Government of India discusses how India can meet its contribution to climate improvement, agreed as part of the 21st Conference of Parties to the United Nations Framework on Climate Change (COP21). It states that most of the money to adapt to, and mitigate, climate change impact will come from the national budget of Government of India, matched with other sources. It mentions the introduction of Tax Free Infrastructure Bonds of INR 50 billion (US$794 million) for the funding of renewable energy projects during the year 2015-16.

In other words, India is making business case for NDCs. NDCs must not spend money but generate revenue. This is just the start and investor community in London and New York in the West and Singapore and Tokyo in the East is keenly matching the developments as India strengthens its credentials for green bonds market.

The Government of India is moving ahead from a subsidy model to focusing more on technical support and broadening investor opportunities, including allowing 100% foreign ownership of renewable projects and raising resources via green bonds. At a recent UN meeting to welcome India’s National Disaster Management Plan issue of financing the plan came up and one suggestion was to launch green bond for investing in integrating disaster risk reduction and climate change adaptation at district level. This is a road to economic growth focused on climate compatible development of India.

CDKN has cutting edge knowledge of the three priority sectors for the green bonds—energy, transport, and infrastructure—and also climate compatible development in India from national to sub-national level. CDKN will continue to play an active role in shaping the contribution of green bonds and other emerging green investment vehicles so as to make India’s transition to green economy rapid, inclusive, and effective.