Green bonds: Should you look at this climate conscious way of investing?

Green bonds are fixed-income investment vehicles that are intended to finance initiatives that aim to improve the environment or the climate. Continue reading to know more about its benefits and issuance in India.

Kirti Jha, MintGenie Team
First Published12 Jul 2022, 12:57 PM IST
Green bonds are fixed-income investment vehicles that are intended to finance initiatives that aim to improve the environment or the climate.
Green bonds are fixed-income investment vehicles that are intended to finance initiatives that aim to improve the environment or the climate.

Several nations have acknowledged the fact that tougher climate change regulations are becoming increasingly necessary. This subject has been brought up at every G20 meeting since 2008. India, also a member of the G20, committed during the COP26 climate summit that it will attain net zero carbon emissions by 2070.

As a result, green bonds have been issued since 2015 to meet India's requirement for significant investments to support this ambitious strategy. Let us first understand what green bonds are:

What are green bonds?

Green bonds are fixed-income investment vehicles that are intended to finance initiatives that aim to improve the environment or the climate. They are identical to conventional bonds with the important exception that the funds collected from investors are only used to support initiatives that have a beneficial environmental impact, such as electrical vehicles and renewable energy.

Green- environmental project financing sometimes entails a large capital outlay. Governments all over the globe are now turning to the issuance of these green bonds in order to satisfy the demands of switching to greener infrastructure.

READ MORE: How can you invest in government bonds? Advantages and disadvantages

How are green bonds issued in India?

Numerous Indian corporations have issued green bonds, according to the RBI research, although the majority of them are listed on the India INX exchange in Gandhinagar, Gujarat. Along with other businesses, green bonds have also been issued by Yes Bank (2015), Rural Electrification Corporation (2017), and Adani Renewable Energy (2019).

While firms like Adani Renewable Energy issued green bonds with a term of more than 10 years, the majority of them had a lifespan of 5 to 10. ReNew Power issued green bonds with a duration of fewer than five years.

The issuance of green bonds in India in 2021 was extraordinary and is expected to break previous records in 2022. In the first 11 months of 2021, India issued green bonds worth $6.11 billion. It was the most powerful issue since the first in 2015.

Moreover it has been observed that foreign investors are drawn to green bonds launched by emerging nations like India because of their reasonable pricing and promising economic development prospects.

READ MORE: What are Savings Bonds: Here are 9 key features you should know about

What are the benefits of investing in green bonds?

Through investing, green bonds offer an opportunity to support environmental issues, and the money invested is put to non-harmful use. Additionally, the green perspective draws an increasing number of people who are more conscious of and motivated to take action against climate change.

An increased demand for green bonds results in a lower cost of money, which reduces company expenditure. These savings are either distributed as a dividend to investors or utilised to reduce the cost of borrowing, which boosts profitability. Moreover, green bonds give you an opportunity to generate tax-free income.

While presenting the Union Budget 2022, Finance Minister Nirmala Sitharaman disclosed the Central Government 's plan to issue green bonds. The money raised from the issuance of green bonds would be used to finance a number of public-sector initiatives that will aid India in lowering its carbon emissions.

Role of bonds in portfolio.
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First Published:12 Jul 2022, 12:57 PM IST
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