Climate change is one of the defining global challenges of our time. Countries across the world have recognized the urgent need to address climate change as a challenge and this is rightly demonstrated by their support for the Paris Agreement and the UN’s 2030 Agenda for Sustainable Development.
We all are aware that urgent action to halt climate change and deal with its impacts is integral to successfully achieving all Sustainable Development Goals and especially SDG13 which is “Climate Action”. However this particular SDG is quite interesting as climate action and many of the Sustainable Development Goals are interconnected. Furthermore, the Paris Agreement and Agenda 2030 provide the foundation for sustainable, low-carbon and resilient development under a changing climate.
Like any other country, India too places high emphasis on achieving its ambitious targets set under SDG 2030 agenda and NDCs under Paris Agreement. The respective targets are in the right symphony with India’s clean and green agenda. However to achieve these ambitious targets, India like any other emerging country, would need a humongous amount of financial flows not only domestically but also internationally.
The need for climate action has never been more urgent and finance plays a powerful role in the transition to a sustainable and inclusive global economy. The new growing dimension of financing has certainly come to play which is “Sustainable Financing”. It is inevitable to say that in order to achieve the social, environmental and economic goals and targets, the role of ‘ESG compliant and sustainable Finance’ is at a premium. India has always been a pioneer for sustainability of developmental activities and sustainability of financing of the developments. ‘Sustainable finance which encapsulates financing to meet environment, Social and Governance structure,’ is now increasingly seen as a viable option to combat climate change and ensure a sustainable future, thus adhering to the board goals of Paris agreement and Agenda 2030.
India has taken some very sound steps recently to invigorate and push sustainable finance agenda in the right direction particularly related to financial markets and the banking system. When we talk of sustainable finance, the first word that comes to the minds of many is “Green”. However, green is just a subset of sustainable financing. Associated with green is green bonds which have become quite popular among Indian and global issuers. Let’s dive deep into what a green bond is and what potential sectors and avenues this segment of financing hold.
A green bond is a debt instrument with which capital is raised to fund ‘green’ projects, which include those relating to renewable energy, energy efficiency, clean transportation, green buildings, wastewater management and climate change adaption. The European Investment Bank and the World Bank pioneered the first green bonds, with EIB issuing the Climate Awareness Bond in 2007 and the World Bank issuing its first green bond in 2008. As of 2021, India has the second-largest emerging green bond market after China. It was in 2015 that India stepped into the green bond market with YES Bank issuing the first green bond for financing the renewable and clean energy projects. Over the years, this market has expanded to several state-owned commercial banks, public sector undertakings, state-owned financial institutions, corporates, and the banking sector. The public sector has played a pioneering role in the ramping up of the green bond market since state-owned EXIM Bank and IDBI came to market in 2015. EXIM Bank launched a 5-year Green Bond issue of USD 500 million in 2015 which was the the first benchmark-sized Green bond out of Asia in 2015 and the third ever Green bond issuance out of Asia .Top issuers of green bonds in India are Renew Power, State Bank of India, Adani Green Energy Limited, Greenko Energy, Azure Power.
Green bonds have a huge potential in accelerating climate actions and promoting sustainable development across a wide range of sectors particularly in renewable energy, green transport, waste management and energy efficiency sectors. SEBI’s green bond guidelines, issued in my 2017, started to build momentum in the right direction by providing greater clarity on the issuance and disclosure requirements of green debt instruments. However India’s green bond market is highly focused on the renewable sector. Other sectors such as green transport, waste management and energy efficiency hold immense potential to mobilize funds and change the narrative.
New dimensions of bonds are emergent which are sustainability bonds, social bonds, covid bonds, sustainability linked bonds, pay for success models (development and social impact bonds) and blended finance instruments. These new debt instruments can be helpful in mobilizing resources from the market to complement public finance for a vast range of sectors of sustainable importance. It is understood that it is important for India to priorities investments in sectors that could help the transition to a sustainable economy. India has also announced the creation of the Social Stock Exchange that will serve as a platform for fundraising for the social sector and incorporates a set of procedures by which social impact will be measured and reported.
With the passage of time, especially in times of pandemic, the need for a supportive international economic environment and enhanced sustainable investment flows has all the more increased. India is on a concrete path to explore synergies towards channeling capital towards sustainable projects and activities. India has also doubled its priority sector lending targets towards renewable energy that will pave way for more investments flowing into clean energy.
Though the path is long, yet India has come a long way towards its journey in a greener and more inclusive way and with concerted efforts would certainly reach its destination.
