What is a Green Bond?

A green bond is a fixed-income financial instrument for raising capital through the debt market. The green bond raises funds for projects having environmental benefits based on what we define as ‘green’.  Green bonds are usually sourced from pension funds, sovereign wealth funds and insurance companies. Green bonds are issued to serve three main objectives in the current market scenario which presents as a barrier to climate mitigation and adaptation activities:

  • Reduce the cost of capital further
  • Stimulate demand from institutional and retail investors
  • Expand and diversify the issuers base.

Types of Green Bond and Applicability Condition Set by Climate Bond Standard

Climate Bonds Standard sets out the requirements that apply to specific types of bonds. Definitions for the Bond Types are provided in the Definitions section of the Climate Bonds Standard. The table below specifies which Requirements are applicable to each Bond Type. The applicable Requirements differ between Bond Types, and address specific risks related to each Bond Type.

Bond Types Applicable Requirements
Use of Proceeds Bond ·         Project Holding

·         Settlement Period

·         Earmarking

Use of Proceeds Revenue Bond ·         Project Holding

·         Settlement Period

·         Earmarking

Project Bond
Securitized Bond ·         Project Holding

·         Earmarking

Other Debt Instrument ·         Project Holding

·         Settlement Period

·         Earmarking


History of Green Bond in India

India is one of popular markets when it comes to issuance of Green Bonds. It featured in the 7th position in terms of issuances in 2016 with issuance of USD 2.7 billion, behind United States, France, China, Germany, Netherlands and Sweden. The history of green bond market in India is well briefed in the figure below.


Axis Bank issued India’s 1st Certified Green bond on London Stock Exchange-The Certification was done by Climate Bond Standard

Defining ‘Green’

The Securities and Exchange Board of India (SEBI) on 30th May, 2017 came out with a circular stating which is the project activities, for which a Debt Security will be called ‘Green’ or ‘Green Bond Security’. The activities are aligned to the Green Bond Principle. The following are the broad categories:-


L&T Infrastructure Finance became the 1st SEBI approved green bond-IFC invests in L&T Infrastructure Finance

Before the development of guidelines by SEBI Internationally recognized Climate Bond Standards lists down a two-step process to determine the eligibility of specific projects as contributors to ‘low carbon’ and climate resilient economy which is well defined in CBS Version 2.1 under clause 9 and clause 10 of the report.

But does the terminology ‘green’ vary?

Yes, the term green will vary with geography and with the functionality of the project activity. All projects that are under ‘green’ may not exhibit the properties of ‘green’ if end effects of such project are detrimental to the society. The Standards stated by SEBI provide for an elaborate list of sectors which would qualify to be eligible projects for Climate Bonds issuances and they are as follows:

Energy Low Carbon Buildings Industry & Energy Intensive Commercial Waste & Pollution Control

•          Wind

•          Geothermal

•          Hydropower

•          Bioenergy

•          Wave and Tidal

•          Energy distribution & management

•          Dedicated transmission

•          Residential

•          Commercial

•          Retrofit

•          Products for building low carbon buildings

•          Manufacturing

•          Energy efficiency processes

•          Energy efficiency products

•          Retail and wholesale

•          Data centers

•          Process & fugitive emissions

•          Energy efficient appliances

•          Combined heat & power

•          Recycling facilities

•          Recycled products & circular economy

•          Waste to energy

•          Methane management





Information Technology & Communications Nature Based Assets Water

•          Vehicles

•          Mass transit

•          Bus rapid transport

•          Water-bourne transport

•          Alternative fuel infrastructure

•          Power management

•          Broadband

•          Resource efficiency


•          Agriculture land

•          Forests (managed and unmanaged)

•          Wetlands

•          Degraded land

•          Other land uses (managed and unmanaged)

•          Fisheries and aquaculture

•          Coastal infrastructure

•          Flood defenses

•          Water distribution infrastructure

•          Water capture & storage infrastructure

•          Water treatment plants

•          Assets in energy & production industries


Process of Issuance of Green Bonds

Issuance of Green Bonds in India will follow the existing SEBI regulations for issuance of corporate bonds as prescribed under ILDS Regulations. However, for describing a corporate bond as green bond, in addition to the compliance required under ILDS Regulations, the Green Bond Principles, 2015 will also have to be disclosed:

SEBI Disclosure Requirements

Over and above the SEBI guidelines the issuer will have to disclose the following points based on Green Bond Principles

  • Use of proceeds: issuers to define and disclose their criteria for what is considered ‘green’ i.e. which projects, assets or activities will be considered ‘eligible’ and how much funds will be spent on.
  • Project evaluation and selection: what process will be used to apply ‘green’ criteria to select specific projects or activities?
  • Management of proceeds: what processes and controls are in place to ensure funds are used only for the specified ‘green’ projects?
  • Reporting: how projects will be evaluated and progress reported, against both environmental and financing criteria.

Alternatively one can get green bonds internationally certified and get it subscribed by international agencies who can list it under foreign stock exchanges. The procedure to achieve such certification is through Climate Bond Standards.

The Climate Bonds Standard & Certification Scheme aims to provide the green bond market with the trust and assurance that it needs to achieve scale. Activating the mainstream debt capital markets to finance and refinance climate-aligned projects and assets is critical to achieving international climate goals, and robust labelling of green bonds is a key requirement for that mainstream participation.

The Climate Bonds Standard sets out clear criteria to verify certain green credentials of a bond or other debt instrument.


India has stated its’ INDC that suggests a requirement of atleast USD 2.5 trillion to finance climate change activities. Introduction of tax free infrastructure bonds amounting to INR 50 billion will help meet a target of 175 GW of renewable energy by 2022 which requires a funding of USD 200 billion. To make green bonds a success the guidelines stated by SEBI and CBS should be integrated to ensure project costs do not supersede the budgeted amount.

Identifying, Assessing and Addressing TBL = Long-term Value Creation

For a long time, annual reports have been the source of information regarding company’s performance, however much of the relevance was in terms of financial data. Companies have now made rapid transition from financial to non-financial data which together demonstrates the agility of the company to survive future shocks. Long term value generation has become a key driver for sustainability and has resulted in addition of several indices – for example: S&P Dow Jones (DJSI) and RobecoSAM together: Long Term Value Creation Index (LTCV). The index is based upon selected criteria which reflect companies’ quality management and its potential to generate long term value which proves to be a driver for RebecoSAM Corporate Sustainability Assessment (CSA).

Investor Seeks – Potential to Generate Sustainable Value

Assessment and disclosure of Long Term Value Creation Index (LTCV) by itself can be a complex exercise which may need significant progress in methodology and subsequent consensus building. In the meantime, businesses may disclose its diligent approach to assess the positive and negative social, environmental and economic value generation across the value chain. This would assist investors to understand and evaluate the potential of the business to generate sustainable value.

Companies generate products and services and in the process contribute to other outputs in the form of waste and by-products. The question that arises is does businesses measure the impact across the entire supply chain? Is it Business as Usual (BAU) or they go beyond it and do impact valuation? The answer is yes, since companies face pressure from its stakeholders, sometimes from NGOs, Government agencies it is necessary for companies to assess the impact. The impact can be positive and negative for society and environment.

Companies while generating the product and services have inputs in the form of raw material used and output in the form of environmental impact i.e.; emissions, waste water and hazardous waste generation, impact on health (negative impact but can be mitigated) social impact being increased productivity, employment (hiring, retention, improved quality of life to the employee and its family, skill development and company earnings) a positive impact.

The economic value generated help company, its employees through salaries, incentives and benefits; , shareholders through dividends and improvement in stock value; creditors through regular uptake and servicing of loan; and government in the form of tax which it pays. However environmental and social value generated (positive) and being affected (negative) by activities of the company is often neglected or limited. Impact valuation will allow companies to know what part of value chain in product generation with maximum environmental and social impact will help companies in assisting their growth paths and where to invest? For example RobecoSAM has come up with three questions that companies need to address:

  • Does the company conduct impact valuation?
  • What type of valuation?
  • Does the company disclose the information to its stakeholders?

    “Business is not all about Profit and Loss anymore – Its has more to do with impact on Society and Environment and its valuation”

Impact valuation help companies in identifying risks which in turn create opportunities for innovation in order to manage the negative impact. For example RobecoSAM surveyed 184 companies from 15 industries of 30 countries for impact valuation. Companies from Europe and Asia-Pacific were leading in impact valuation response evaluation for 2017 with major response from chemicals, metals & mining and oil, gas and consumable fuels industry.

Companies from varied industrial sectors : Beverages, Chemicals, Construction Materials, Containers & Packaging, Diversified Consumer Services, Food Products, Hotels, Restaurants & Leisure, Household Durables, Media, Metals & Mining, Multi line Retail, Oil, Gas & Consumable Fuels Paper & Forest Products, Specialty Retail, Textiles, Apparel & Luxury Goods did undertake impact valuation, however  for efficient impact valuation strategy setting, measuring and improving performance, product development and supply chain management were key inclusive factors that the companies need to address.

What companies lack is strategy setting, measuring and improving performance, product development and supply chain management as key inclusive sustainability factors for decision making for a more efficient impact valuation?

An appealing thing that was addressed in the RobecoSAM survey was: companies are undertaking impact valuation and majority of them are monetizing it. However what companies lacked was disclosure on valuation. A disclosure practice in place will help companies identify material issues and also exhibit to the investors the sustainability impacts which it creates.