MintGenie Explains: Should You Look For Green Bonds To Invest Your Money In?

Several countries have recognized the fact that stricter climate change regulations are becoming increasingly necessary. This subject has been raised at every G20 meeting since 2008. India, also a member of the G20, pledged at the COP26 on climate to achieve net zero carbon by 2070.

Accordingly, green bonds have been issued since 2015 to meet India’s large investment needs to support this ambitious strategy. Let’s start by understanding what green bonds are:

What are green bonds?

Green bonds are fixed income investment vehicles intended to finance initiatives aimed at improving the environment or the climate. They are identical to conventional bonds with the important exception that the funds raised from investors are only used to support initiatives with a beneficial environmental impact, such as electric vehicles and renewable energies.

Financing green and environmental projects sometimes involves a significant down payment. Governments around the world are now turning to issuing these green bonds to meet the demands of transitioning to greener infrastructure.

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

How are green bonds issued in India?

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

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

India’s green bond issuance in 2021 has been 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. dollars. It was the most powerful issue since the first one in 2015.

Moreover, it has been observed that foreign investors are attracted to green bonds launched by emerging countries like India due to their reasonable price and promising economic development prospects.

READ MORE: What are savings bonds: here are 9 key features you need to know

What are the benefits of investing in green bonds?

Through investment, green bonds provide an opportunity to support environmental issues, and the money invested is used for non-harmful purposes. Additionally, the green perspective is attracting a growing number of people who are more aware and motivated to take action against climate change.

Increased demand for green bonds drives down the cost of money, which reduces business spending. These savings are either distributed as dividends to investors or used to reduce the cost of borrowing, which increases profitability. In addition, green bonds offer you the opportunity to generate tax-free income.

During the presentation of the 2022 Union Budget, Finance Minister Nirmala Sitharaman unveiled the central government’s plan to issue green bonds. The money from the green bond issue would be used to fund a number of public sector initiatives that will help India reduce its carbon emissions.

This story was first published on MintGenie and accessible here.

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Garland K. Long