India's green bond issuances have grown slower than peers, shows data

Dedicated ESG debt funds may be a key factor to help issuances grow

The amount India has mopped up through green bond issuances grew at a slower rate than in many peer economies.

India raised $22.1 billion through green bonds till the first half of 2022, compared to Russia’s $2.6 billion, Brazil’s $11.2 billion, and China’s $250 billion during the same period. The figure for Japan was $44.5 billion and US $334 billion.

A green bond is a debt instrument used to finance projects of environmental importance. India’s Rs 8,000-crore sovereign green bond issuance on Wednesday comes amid a surge in sovereign participation in the market globally. Sovereign issuances accounted for less than 1 per cent in 2016. This has since risen to 15.9 per cent share in 2022.  

However, financial and non-financial corporations still dominate, accounting for 52.7 per cent of the total issuances in 2022. This is up from 36.2 per cent in 2016. Other issuers, such as development banks, have seen a decline in their share.

India’s issuers previously included players, such as the Export-Import Bank of India and State Bank of India.

“…most of the green bonds in India are issued by the public sector units or corporates with better financial health. It is evident from the fact that the private sector issuers of green bonds, on average, reported lower debt-to-assets ratio compared to the non-issuers of green bonds,” said ‘Green Finance in India: Progress and Challenges’ from authors Saurabh Ghosh, Siddhartha Nath, and Abhishek Ranjan, which was published in the Reserve Bank of India’s January 2021 Bulletin.

Discomfort with exaggerated claims of being ‘green’ is likely to be in focus in the new year, with scrutiny from regulators and attention to definitional issues; according to a ‘2023 Asia Sustainability Outlook’ report from global financial major Morgan Stanley issued in November 2022.

“Green-washing came to the forefront of regulations and enforcement in 2022, which would likely carry on until 2023. As such, defining sustainability and green investments should continue to come under the spotlight in Asia,” it said.

Funds focused on environmental, social, and governance (ESG) investments are largely present in the equity space in India, pointed out Mahendra Kumar Jajoo, chief investment officer (fixed income) at Mirae Asset Investment Managers (India). This means the same kind of ready pool of capital for investing in green bonds, which are available elsewhere in the world, are not currently available in the same way for fixed income investments.

“There are no ESG funds in India,” he said.

The issuance of a sovereign green bond and other steps are likely to encourage the formation of such markets, though it may take some time to fully develop, he said.

Neha Kumar, Head, South Asia Programme, Climate Bonds Initiative said that the amount raised by India through green bonds since 2015 is “suboptimal relative to the size of the economy and the massive financing gap we face to realise our climate targets. But it is not nothing”.

“Investors look for credible green/sustainable projects by which we mean that ‘greenness’ is verifiable and meets internationally recognised standards. Indian investors do not yet differentiate. And there are no dedicated pools of domestic green capital,” she added.

“On the whole, a lot more policy support for market development is required including a clear definition or taxonomy of what gets classified as a credible sustainable investment. That effort is on and needs to be accelerated by the Ministry of Finance.”