Green Bond Market in India Accounts for Only 3.8 % of Overall Domestic Corporate Bond Market: Report

According to a latest report, the green bond market in the country accounts for only 3.8 % of all outstanding corporate bonds exceeding USD 500 billion, reports PTI.

In a report on Friday, Fitch Ratings said that as of January 2023, GSSS (Green, Social, Sustainability and Sustainability-linked Debt) bonds accounted for USD 20 billion or 3.8 % of the country’s overall corporate bond market while the government bond market is more than double this size.

It stated that one of the reasons the domestic green bond market is so small is because issuers are concentrated in the energy sector, and particularly renewable energy from solar projects.

According to the report, another reason why green bonds have a low base is that they are all denominated and held in the rupee by domestic banks, insurances, and the Reserve Bank of India (RBI). However, the vast majority of issuers (as much as 90%) prefer issuing GSSS bond in dollars.

The RBI, which issued sovereign green bonds worth Rs 16,000 crore in two equal tranches, on January 23th and 9th February, can be observed.

Fitch believes the maiden issue reflects increasing policy focus on domestic financing for climate adaptation and mitigation. Fitch also believes that domestic investors will hold these bonds largely due to the national climate policy’s incentives.

The sovereign green bonds’ proceeds will be used to finance projects that achieve the decarbonisation goals, including net-zero emission by 2070, decreasing the GDP’s emissions intensity by 45% by 2030, and increasing non-fossil fuel energy sources to 40% by 2030.

In October 2022, the country’s sovereign green-bond framework outlined how proceeds from green bonds would be used to fund projects such as renewable energy, energy efficiency and sustainable water and waste management.

According to the report, domestic issuers have many problems accessing the capital market. These include low credit ratings, low credit guarantees and low investor demand.