With the global green bonds market projected to reach $1 trillion by 2023 as per Climate Bonds Initiative, investors are now vying towards making environmentally conscious investments and promoting the climate agenda.
As of January 2023, the market size of green bonds in India was USD 20 billion. This represents 3.8% of the overall outstanding corporate bond market in India, which is worth more than USD 500 billion.
Among the front runners in the developing world, India, in recent years, has become one of the favorable destinations to invest in the green bonds market, reaffirming the robust investment opportunities available at the investor’s helm.
To discuss further on this proposition, this guide will help you understand the prospects and the steps to invest in sovereign and private green bonds in India.
How Are Bonds Green
With the advent of the global environmental protection agenda, the concept of sustainable bonds emerged, focussing on making investments targeted towards climate-friendly projects. Sustainable bonds include social, sustainability, and green bonds (GSS).
Green bonds take up the majority share in the total investments and fundamentally work like traditional bonds where an entity, either company or country, issues bonds or IOUs to raise money from the investors, which they utilize to finance environment-conscious projects and infrastructure.
Further, these bonds are issued for a fixed period of time, and with maturity, investors receive their money back along with a certain interest rate.
Green bonds are unique because the funds raised are specifically aimed at investing in sustainable projects. These projects might include renewable energy, clean water, or developing energy-efficient infrastructure.
For a brief history check, the first green bond was issued in 2008 by the World Bank and gained substantial popularity after the 2015 Paris Climate Agreement. As of 2022, more than $2 trillion worth of green bonds have been issued globally, and the number is projected to reach $5 trillion by 2025.
India – The Developing Mighty
India is admittedly a latecomer when it comes to venturing into the green bonds market domestically.
However, analyzing the growth of the issuance of green bonds in the previous 2 years, it is discernible that India’s green market is going to soar substantially in the coming years. In 2021, the total value of GSS bonds investment was $7.85 billion, which is 585% higher than that in 2020. Out of this figure, $6.11 billion was alone invested in green bonds.
It is a significant boost highlighting the willingness of companies to issue green debt instruments in the market for promoting climate-conscious projects and investments. What makes India’s case fascinating is the potential of growth in green and renewable projects in coming years aimed at furthering the government’s agenda of going carbon neutral by 2070 and quadrupling its renewable energy capacity by 2030.
This helps us disseminate a blueprint to understand the scope and viability of making green investments in a developing country with the world’s fastest-growing economy.
Moreover, the Government of India took a major step in the 2022-23 Annual Financial Budget by launching Sovereign Green Bonds for the first time. It has now launched a framework for the common public and issued $1.9 billion worth of bonds, which will move for public bidding from 25 January 2023.
This step further ensures the readiness of the government to acknowledge green bonds as feasible financial instruments and take steps to create a favorable ecosystem with regulatory support for the investors to make long-term investments in green projects.
Therefore, with this development, investors can now invest in both private and sovereign green bonds in the country. Let’s check out how you, as an investor, can choose various green bonds, including sovereign ones, to invest in India.
How to Invest in Green Bonds
Investors have the option to invest in public and private green bonds. Here is how you can do it:
Sovereign Green Bonds
The sovereign green bonds will be issued by the RBI through Uniform Price Auctions. The process will be similar to the issuance of Government securities (G-secs), where the government will borrow the money to fund public projects at a uniform interest rate.
As per the RBI calendar, 16000 crore rupees worth of green bonds will be listed for public bidding in two tranches at 8000 crore rupees each on 25 January and 9 February, respectively. These bonds will be issued with a maturity period of 5 and 10 years and can also be traded like other bonds.
Retail investors can bid for these bonds on the RBI-Retail Direct platform, which is a government website for facilitating bidding on G-secs in both primary and secondary markets for individual investors. You can register on this platform by following the below process:
- Visit the RBI-Retail Direct website.
- Create a single or joint account. You will receive an OTP on your registered mobile number and email id.
- After confirming OTP, you’ll have to upload the canceled cheque or give permission for online verification of your account details.
- Within two days, you will get a notification for accessing the platform.
You can invest in green bonds here after fulfilling the criteria mandated by the RBI, which are similar to investing in any other government security. However, the requirements might be overwhelming for many investors, and they might also not be eligible to invest in it directly.
Therefore, you can invest in bonds through brokerage firms like Zerodha or specialized bond trading platforms like Wint Wealth as well. These platforms allow you to invest in both government and private bonds floated by various companies.
Investing in Private Green Bonds
Similar to the government, private entities like multinational corporations also release green bonds at a fixed interest rate for the public to finance sustainable projects.
These bonds come under the category of corporate bonds, having similar mechanisms to invest in them, except for the fact that green bonds are released with a specific agenda in mind.
Issuance of green bonds is effectively regulated by SEBI guidelines on “Green debt securities,” thus ensuring companies don’t release bogus IOUs under the aegis of green bonds.
You can buy private green bonds in two ways:
- You can directly contact the companies in the primary market. They release notifications for the issuance of bonds on their websites, or you can also apply through your bank. In any case, you need to have a Demat account to safely store your bonds. However, it is a tardier process for investors with limited capital, and institutional investors and Non-banking financial institutions having immense capital usually avail of this option.
- Apart from directly buying green bonds from the company, you, as a retail investor, can purchase these bonds as mutual funds or exchange-traded funds (ETFs) in the secondary market. These are offered by various banks and mutual fund organizations on their platforms or through brokerage firms. Meanwhile, specialized platforms like Wint Wealth, goldenpie.com, and thefixedincome.com also offer retail investors easy access to credible bonds along with research materials that explain the credit rating, default risk, liquidity risk, and interest rate risk of the company and the bonds.
With India at the touchstone of becoming the 3rd largest economy in the world by 2030, the government and companies have ramped up their investments in building sustainable infrastructure in the country.
With this overall positive outlook, India’s green bond market is inclined to grow at an unprecedented rate, and now retail investors also have the opportunity to invest in the growth story and earn substantial returns.