Green Financing

Given the gaining importance of climate change, even the United Nations has also included environment related activities in number of its Sustainable Development Goals.

“Green” is the word which is being associated with almost all the activities of a business. Even financial activity has not been left out.

Green Financing is regarded as a designed financial mechanism either product or a service which is formed to improve environment and sustainability.

This comprises an array of loans, debt instruments or mechanisms and investments that are used to foster the development of green projects and/or those which has positive impact on the environment. Typical green projects include

  • Conservation of Biodiversity
  • Renewable energy and energy efficiency
  • Projects aiming towards reducing environmental risks and ecological scarcities in an economy, 
  • Sustainable use of natural resources including land
  • Pollution prevention and control

The most commonly used green finance instruments are is the Green Bond and ESG (Environmental, Social and Governance) Bonds.

These green financing instruments are attached with tax enticements such as tax exemption and tax credits, making them a more desirable investment instrument when compared to other kinds of taxable bonds.

To be identified as green bonds or related debt instruments, those shall be often verified by organizations such as the Climate Bonds Standard Board, which certifies that the prospective bond will fund projects that is advantageous to the environment.

Climate Bonds Standard Board through the Climate Bonds Standard and Certification Scheme labels bonds and loans as a qualified green bond. These bonds should fulfil diligent scientific criterion and should be ensured that the debt instruments with the certification, are in line with the 20 Celsius warming limit of the “Paris Agreement”. This Scheme is used globally by most of the financial markets, bond issuers, investors and the governments to choose investments that truly contribute to address the environment related issues.

 

In India, green bonds were first introduced by Yes Bank in 2015 to finance clean and renewable energy projects. Apart from this, there are several other green bond issuers in India like

  • Adani Green Energy (UP) Ltd.
  • Ghaziabad Nagar Nigam.
  • JSW Hydro Energy Ltd.
  • Parampujya Solar Energy Private Ltd.
  • ReNew Wind Energy Delhi Private Ltd. (With nine other group companies)
  • State Bank of India
  • Yarrow Infrastructure Private Ltd.

These Indian issuers have listed their Green Bonds on BSE’s India International Exchange (India INX) at the International Financial Services Centre (IFSC) situated at the Gujarat International Finance Tech City (GIFT City).According to a report, as of 2021, India has emerged as the second largest bond market after China.

Prof.Smithashree C R
DSCE-MBA

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