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A Comprehensive Guide to Green Bonds in India

Overview of Green Bonds – A Green Bond, also called a climate Bond, is like a regular bond in every sense, except it is designed to support specific climate-related or environmental projects with the intention of raising funds for sustainable agriculture, pollution prevention, fishery and forestry, renewable energy, clean water and transportation, along with environment-friendly water management projects.  

History of Green Bonds 

In late 2007, a group of Swedish pension funds expressed their interest in investing in projects that benefit the environment. The World Bank became the pioneer in issuing Green Bonds in November 2008 and aimed to raise funds from the investors of fixed-income securities that support lending money for eligible projects focused on addressing climate issues. Since then, over 50 countries have followed suit in issuing Green Bond, with the United States leading in terms of the volume of Green Bond issuances. 

Yes Bank became the first institution in India to issue a Green Bond in 2015. Yes Bank successfully raised Rs. 1645 crores through three tranches, with subscriptions from the International Finance Corporation, the private sector arm of the World Bank. Subsequently, the IFC traded these bonds on the London Stock Exchange, bringing significant global visibility to Yes Bank’s bonds. This paved the way for other Indian corporates to issue offshore Green Bonds. By December 2022, the total value of Green Bond issued by Indian entities reached $19.17 billion, accounting for approximately 3.8% of India’s total outstanding corporate bonds

Ghaziabad became the first municipality in India to issue Green Bond in April 2021, and in February 2023, the Indore Municipal Green Bond was listed on the NSE (National Stock Exchange)

Sovereigns around the world also joined the Green Bond movement, with Poland leading the way by issuing sovereign Green Bond in 2016. This was followed by France, Nigeria, Indonesia, Belgium, and other countries, collectively driving the global Green Bond market to reach $1 trillion in 2020. Finally, in 2023, India joined this group of countries by issuing Rs. 16,000 crores in two tranches (Rs. 8,000 crores each) on January 25th and February 9th, 2023. 

What are Sovereign Green Bonds? 

Sovereign Green Bonds are issued by the RBI (Reserve Bank Of India) on the Central Government’s behalf if they need money allocation for initiatives like renewable energy projects, sustainable infrastructure and environment-friendly initiatives. The Best thing about Sovereign Green Bonds is that they are fully backed and properly guaranteed by the RBI itself. 

How do Sovereign Green Bonds work in India? 

On November 9, 2022, the government introduced a framework for Sovereign Green Bonds, aligning itself with the Green Bond Principles set by the International Capital Market Association. On January 6, 2023, the Reserve Bank of India (RBI) announced the issuance calendar for these bonds. The finance minister officially declared the issuance of Sovereign Green Bond in the Union Budget 2023. 

The RBI conducted its first auction of Sovereign Green Bonds, amounting to ₹16,000 crores. These bonds included Sovereign Green Bonds 2028 and Sovereign Green Bonds 2033, with a cut-off yield of 7.10% and 7.29%, respectively, slightly lower than the same tenure of Government Securities

The framework provides a plan for directing the funds raised from Green Bonds to various projects, such as energy efficiency, renewable energy, sustainable water, clean transportation, green buildings, and waste management. As there is no proper litigation, India uses the ICMA (International Capital Market Association) principles as guidelines to establish their Green Bond framework. These principles provide optional guidelines for the appropriate utilization of funds, assessment and selection of projects, management of proceeds and reporting. The principles provide a broad range of project categories that can be supported through Green Bond issuances. 

As per the framework, the funds generated from Sovereign Green Bond will be utilized for initiatives that align with India’s carbon emissions reduction objectives. These goals include achieving net-zero emissions by 2070, reducing the emissions intensity of GDP by 45% by 2030 (compared to 2005 levels), and increasing the share of non-fossil fuel energy resources to 50% by 2030. The Prime Minister also shed introduced “Panchamrit,” a five-step climate action plan in which he shed some light on the need for financial resources to achieve these objectives. And Sovereign Green Bond will play a crucial role in securing the necessary funds.  

To facilitate the process of project evaluation and selection, the Ministry of Finance has established a Green Finance Working Committee. This committee will oversee the allocation of proceeds to eligible projects and publish an annual report that describes the financed projects, implementation status, unallocated proceeds, and key performance measures. The committee is also responsible for ensuring that funds are allocated within 24 months of issuance and will develop an accounting mechanism. 

Importance of Sovereign Green Bond 

If we talk in numbers, 25 countries on the list have now issued Sovereign Green Bonds. India has left China behind and become the second-largest contributor of Green Bonds among emerging economies. Green Bonds hold great value for us as they serve as a desirable solution for both our environmental concerns and investment requirements. Some of its importance is stated below:- 

  1. Green Bonds and Investor Diversification  

Apart from the primary goal of raising funds for environmental preservation, Green Bond also aim to attract a wide range of investor portfolios. For example, Poland experienced a significant diversification of investors, many of whom had not previously invested in Polish sovereign bonds. The issuance of Sovereign Green Bonds also contributes to the growth of private Green Bond markets. When an entity, whether a sovereign or a company, chooses to issue a Green Bond, it can attract new investors interested in environmentally friendly investments. 

  1. Increase in Domestic Participation 

In order to facilitate greater involvement of domestic institutions, changes are required for Regulatory adjustments. RBI has taken some significant steps, like issuing a discussion paper on topics like climate risk, in order to encourage banks to expand their green finance activities. Additionally, the Insurance Regulator has urged its regulated entities to consider investing in sovereign Green Bonds. In the future, we anticipate a significant increase in domestic participation. 

  1. Foreign Participation 

 The Reserve Bank of India (RBI) has lifted all restrictions on foreign portfolio investors regarding Green Bonds. The conditions that normally apply to regular bonds do not apply to these bonds, which encourages foreign institutions with environmentally friendly investment goals to invest in India’s Green Bonds. Although retail investors will have a limited role in these bonds, the majority of investments will come from foreign portfolio investors. Since India lacks dedicated Green Mutual Funds or Pension funds for Green Bonds, there will be significant demand from foreign investors. While the government aims to encourage domestic participation, it may take some time for that to happen.  

  1. Potential of Renewable Energy                                               

India has vast renewable energy (RE) potential that surpasses 3,000 GW. However, only a small fraction of this capacity, around 32.8 GW, which is slightly over 1 percent, has been tapped into. The government has set an ambitious target of installing an additional 165 GW of RE capacity by 2022 in order to significantly increase the utilization of renewable energy sources. To achieve this target, the government is focusing on finding ways to facilitate the necessary capital investment, which is estimated at USD 200 billion. Green Bonds can serve as an ideal mechanism to fulfil these objectives, as they can help us raise the required funds to unlock our renewable energy potential. 

Issuer and Investors 

In the early stages, Green Bonds considered niche products mainly introduced by a few development banks at a global level. However, due to the rising demand for such bonds in the market, there has been an expansion in the number of issuers and investors involved in Green Bonds. The issuance of Green Bonds has experienced remarkable growth, primarily driven by a new group of issuers, such as corporations, commercial banks, and municipalities. 

The diversification trend extends beyond just issuers and encompasses the investor base participating in Green Bonds. Initially, these bonds attracted only Public Sector Undertakings (PSUs) and institutional investors. However, now even retail investors are joining as active participants in the Green Bond market. 


  1. Illiquid Secondary Market – The Green Bond market in India is relatively small compared to the overall Bond market, resulting in a highly illiquid secondary market for Green Bonds. However, if more Green Bonds are issued in the future, it could increase demand and provide investors with an exit option through the secondary market. Nevertheless, cautious investors may now avoid investing in Green Bonds due to their lack of liquidity. 
  1. Shorter Tenures – Green Bonds in India typically have tenures ranging from 5 to 10 years, with only a few issuances extending beyond 15 years. The limited availability of longer durations can pose challenges for issuers aiming to achieve sustainable objectives. Additionally, it may discourage investors who prefer longer-term securities from investing their funds in these bonds. 
  1. No Tax Benefit – Currently, there are no tax benefits on Green Bonds in India. A tax incentive can be a game changer for the popularity of these bonds. 
  1. Absence of an interim Agency – At present, the Public Debt Management Cell (PDMC) functions as a temporary entity. It has not yet been elevated to the status of a statutory agency. Establishing a dedicated Debt Management Agency would promote transparency and ensure compliance with global standards within the Green Bonds ecosystem. This would enable investors to access more detailed information through annual reports, including updates on the utilization of unutilized funds, among other aspects. The presence of a specialized agency could expedite the progress of Green Bonds, attracting investors from around the world. 
  1. Credit rating of India in Globe – India’s decarbonization targets require financing, which is expected to come from foreign portfolio investors. However, India’s credit ratings, as assessed by S&P and Fitch as ‘BBB-‘ and by Moody’s as ‘Baa3,’ respectively, are indicative of the lowest-possible investment grade, albeit with a stable outlook. This may discourage potential foreign investors from investing in India. 


Green Bonds offer a potential solution to address the environmental and economic challenges we face today, aiming to reverse the adverse impacts of the industrial revolution. With appropriate regulatory advancements and widespread involvement, India has the opportunity to emerge as a thriving arena for both Sovereign and Corporate Green Bonds, contributing positively to the global economy.