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The Finance Ministry announced last week that it would issue sovereign green bonds worth Rs 160 billion as part of its October-March (H2FY23) borrowing programme. With this, India will join a club of just 25 nations so far whose governments have issued bonds to exclusively fund climate sustainability and green infrastructure projects and initiatives.

There are many issues to be sorted out, including assuring big institutional investors that the funds from these issuances will only be used for green projects. Finance Ministry officials have told Business Standard that the centre and the Reserve Bank of India (which issues bonds on behalf of the centre) are continuing discussions with green bond market participants and investors.

The idea is to attract not just the big institutional investors and pension funds but also environmental, social, and governance (ESG) funds that invest more in green bonds. The guidelines are expected to be out by late October or early November.

India will be no pioneer in the issuance of green bonds. As of mid-June 2022, as many as 25 nations have issued sovereign green bonds worth $227 billion, as per research compiled by Climate Bonds Initiative.

These include advanced economies like the United Kingdom, Spain, Ireland, Italy, Austria, Canada, and others, and emerging economies like Chile, Indonesia, Hungary, Poland, Fiji, Egypt etc.

It is imperative for India to get its maiden sovereign green debt right. It is because it will serve as a template for state governments and corporates that are expected to follow this path.

Here are some lessons that India can take from the bond issuances by other nations. It is to be noted that this piece limits itself to green bonds issued by governments and not by corporates.

Global Standards and Certification

The most recent nation to issue sovereign green bonds was Singapore. It received strong investor demand with a combined placement order book of more than $5.3 billion, or 2.26 times the size of the amount offered. This was primarily because eligibility criteria were developed with reference to internationally recognised market principles and standards such as the ICMA Green Bond Principles and the Climate Bond Initiative (CBI) Taxonomy and Sector Criteria.

One of the key markers of green bonds is rating or certification. And these are not just the ratings assigned to sovereign debt by agencies such as Fitch, Moody’s etc but specific certification assigned on the basis of the eligibility criteria of green bonds. Examples include Chile, Singapore and a number of European nations.

Indian policymakers will need to ensure that the eligibility criteria and end-uses are up to international standards, in order to attract top global investors.


Green bonds may be issued with a higher price, and thus have a lower yield compared to other outstanding debt. The bond will price inside its own yield curve. This is known as a new issue concession; when present in a green bond, this is termed as “greenium”. What this does is make issuances of green bonds more attractive for the sovereign.

“We have to ensure that the rates are attractive to us, as is the norm elsewhere,” said a senior Finance Ministry official.

Climate Bonds Initiative recently undertook green bond pricing analysis of 73 sovereign and corporate green bonds with a combined face value of $71.8 billion priced between July and December 2021. It found that green bonds achieved higher book cover and spread compression than vanilla equivalents, on average. For bonds issued in United States dollars, average oversubscription was 3 times for green bonds and 2.7 times for vanilla equivalents. Spread compression averaged 25.9bps for green bonds and 21.7bps for vanilla bonds.

Many countries, like Germany, have issued green bonds alongside equivalent vanilla bonds, in order to find a reference point. Since the centre’s green bond issuance will be part of its overall borrowing programme, it is likely that the same will happen here. India’s bonds will be rupee denominated.

End Uses

As reported earlier, The government is working out means to convince investors in green bonds that the money they put in will not be used for anything else. While the government runs committed funds like those from cess on taxes and the non-lapsable pool for the Northeastern states, there is no precedent for this as regards borrowing.

Most sovereign issuers went through a budget tagging exercise to determine exactly which expenditures were suitable for inclusion as a green expenditure. Four sovereigns – Nigeria, Lithuania, Luxembourg, Seychelles – not only mention green bond proceeds expenditure for the current year but also future expenditures which will be undertaken through such issuances.

The UK, Thailand, and Colombia have included reporting requirements on social co-benefits and financing social priorities in addition to green objectives according to national, regional, or international standards and frameworks.

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