Green Bonds - All You need to Know | SBI PO Prelims & Mains Preparation - Bank Exams PDF Download

Introduction

About Green Bonds

• Initially, green bonds were issued by World Bank, multilateral organizations and few nations from 2007
• Green bonds are pioneered by development banks in few nations
• Green bonds is a niche product till 2012
• Green bonds are focused to Environment, Social and Governance (ESG) projects
• There is the double scope of environment benefit and development in green bonds
• Green bond concept is open to corporate from 2016 in India
• It is a new concept with regulations and guidelines still in the initial stages

Nodal Agency

• Securities and Exchange Board of India (SEBI) is the nodal agency
• SEBI released the green bond concept paper on December 2015
• SEBI frames the guidelines regarding issuance of green bonds

Difference between Regular bond and Green bond

• Green bond is issued to finance only green projects
• Green bond issuer explicitly states that the fund raised will be used for environmental benefit activities like renewable energy, solar projects etc
• Green bonds are being used based on market practices
• Issuer can price Green bonds at a far better rate than the regular bonds due to the environmental benefit feature

Benefits of Green bonds

• Green bonds help to increase the reputation of the issuer
• Issuer will get positive publicity
• Green bonds develop a commitment among the corporate about sustainability and development of the environment
• Green bonds will give an international experience
• Positive public relations will be enhanced
• New set of investors will come in to the fray with the introduction of green bonds
• Issuer can get access to a diversified set of investors other than business oriented clients or investors
• Issuer will get a pricing advantage in case of green bonds
• The current scenario of global warming and climate change will attract global investors to invest in green bonds in large numbers
• The cost of funding for the green projects will be lowered with the expected increasing number of investors in the green bonds

Conclusion

• Green bonds is relatively a new concept to Indian market
• SEBI must frame guidelines for issuing green bonds to prevent the misuse of funds raised through green bonds
• SEBI must establish a monitoring mechanism to check the usage of the green bonds
• World nations are responding in a positive manner to the climate change scenario with the signing of the Conference of Parties (COP) in Rio by majority of the nations
• GOI has placed special emphasis on renewable energy projects especially on solar power generation making it conducive for green projects
• The reception of green bonds in India is on the positive side
• Overall, Green projects and green bonds offer huge opportunities in future for corporate for the overall development of the nation and the world as a whole