Dr. Deepika
Upadhyay1, Priyanka Sharma2, Swetha Wenona Suvarna3
1Assistant
Professor, Department of Commerce, Christ (Deemed to be University), Bangalore
Karnataka India
2Post
Graduate Scholar, Department of Commerce, Christ (Deemed to be University),
Bangalore Karnataka India
3Post
Graduate Scholar, Department of Commerce, Christ (Deemed to be University),
Bangalore Karnataka India
*Corresponding Author E-mail:
deepika.upadhyay@christuniversity.in
ABSTRACT:
The present paper identifies
the growing prominence of green bonds in the global markets. The paper is aimed
at identifying the benefits and drawbacks of issuing the green bonds.
Descriptive methodology is applied to understand the issue, impact and
guidelines regarding green bonds. It is done with the help of drawing
inferences from different countries’ policies regarding issuance of green
bonds. India should promote green bonds for a greener future of the country and
world at large. This should be done under implicit guidance from various
regulatory authorities to provide the investors with security and good returns.
KEYWORDS: Green Bonds,
Environment, Climatic changes, policies and regulations.
INTRODUCTION
Climate change and surging
environmental issues are a matter of great concern for all of us. Rising
temperature levels, global warming, decreasing ground water level, sea levels,
increasing frequency of natural disasters are some examples of these grave
issues. This situation calls for tackling the issue in such a way that it
mitigates and manages this immense problem in the best possible manner. In
addressing this climate change and growing environmental issues, World Bank
Group has taken a leap start by helping developing economies and other
countries of the world and thus contributing to the global solution. Green
Bonds are one such form of innovative financial instrument which was launched
to combat issues related to climate change. In the year 2007, they were formally
introduced in the global market as a niche product with by European Investment
Bank and World Bank.
Green Bond is a fixed
interest-bearing debt instrument which is raised by companies, corporations,
municipalities, central and state governments to fundgreen
projects that encourage sustainable development by minimising
carbon footprints. Entities that use green bonds to raise capital can invest
the corpus only in climate or environment-friendly green projects like
renewable energy, energy efficiency, clean transportation, sustainable land use
and water use, biodiversity conservation and sustainable waste management. It
is an innovative investment tool for socially responsible investors from both
public and private sectors who want to raise capital for projects and other
activities for achieving returns, at the same time they also want to support
environment friendly development projects. Although, green bond has been there
in the market for quite some time but unfortunately, the level of investment in
these instruments is still very miniscule and its market is at a nascent stage,
if we compare them with the overall debt market. These financial instruments
are intended to ensure and channelize the flow of capital to low carbon
infrastructure projects. India has embarked on an ambitious target of building
100GW of energy from solar energy sources and 60GW from wind energy sources by
2022. As on March 31, 2016, the corresponding figures stood at 6.76GW and
26.7GW respectively. Unfortunately, renewable energy is more capital intensive
and requires a massive funding of over $200 billion in form equity and debt.
Therefore, an enabling policy by the government is vital for the growth of
Green Bonds. Government should take strong initiatives in this regard by providing
taxation benefits, encouraging investment in sustainable projects, support in
form of incentives and subsidies. It is a known fact that fossil fuels like
coal, kerosene, diesel, gas etc. have been heavily subsidised
by the government ever since the history. These energy resources are mainly
responsible for the environmental degradation and global warming. The
Government should treat green bond market equitably by providing taxation
benefits, promoting investment in green projects across the country. Besides
this, the government should also make it mandatory for various commercial
undertakings to set up solar panels for generating solar energy. It should also
impose taxes heavily and withdraw all kinds of subsidies given to the
industries which are highly polluting and are hazardous for the environment.
LITERATURE REVIEW:
There is no set explanation
about a green bond. In many ways they are very similar to the generic bonds.
States and several NPOs issue these to fund their development motives. The
investors are making constant efforts to lower the transaction costs to boost
the demand for the green bonds(Mark, 2015). The
issuers of green bonds promise to use the funds for environment soothing
projects. Though, the share of green bonds of the whole bond market is tiny,
but the contribution of green bonds out of all such green projects is huge(J., 2014). The green projects have seen drastic light
in the past two decades. The markets for such projects have grown several
folds. (Class, 2016). Green bonds are the origin of USA and were first listed
on New York Stock Exchange but with time have got a reputation globally.
Recently Canada has stepped into the game and levelled up the stakes. Canada
saw the Major MNCs recognising the vitality of the
same, and decided to step into the shoes(Moulton,
2015). The Chinese Government understood the importance of such instrument in
the capital market. The People’s Bank of China(PBoC),
the Central bank of China has set some ground rules for issue, maintenance, and
implementation of such bonds in the country(Khouri,
2015). The other Asian countries are also making efforts to move to a greener
future with the help of green bonds in this age of capitalisation,
but the growth of green bonds has not seen matching response as in the Western markets(Khouri, Asean struggles to
jump on green bond bandwagon, 2015). The green market has developed to widen
the range of green to securitised loans, promissory
notes and dedicated green funds. Asian and African countries are going to be
the next hub for green bonds. The market for green bonds is recognised
as a mounting one, which significantly lacks some regulations and investor guarantee(Labbe, 2017). The path breaking record of green
bond was widely celebrated in 2014, which in turn promised the investors’
attraction in the years to come. It helps the issuer with gaining a
distinguished investor base. The investor also gains from a diversified
portfolio and sense of conscience. It raises awareness and is for a good cause,
thus is getting appreciated globally (Linhardt,
2014). The market for green bond will be less flexible as compared to the other
bond markets. While the other bond’s prices will be affected directed by every
rise and fall in the industry, the green bond market will be subsided with any
such. Rather it will see fluctuations on account of the environmental
disturbances and failure of implication for the said purpose(Lansne, 1990). Green bond is start of such initiatives from
the companies in the direction of a green future. There are several such
instruments which will be introduced in the capital market. The shortcoming of
green bonds is that valuation of green bonds are
generally not seen as equivalent to the other debt instruments issued by the
same company. The reason can be the lack of regulations, investor protection
and returns(Emons, 2014).
Thus, green bonds hold a geared-up future, provided the governments support the
cause, execute regulations and companies comply by them. If the investors find
them beneficial and return generating, they will prove to be a vibrant step
towards a green future.
RESEARCH AND FINDINGS:
In the period 2007 to 2012
multilateral agencies such as European Investment Bank, World Bank have been
among prolific issuers of green bonds in the global market. The first corporate
green bond was introduced in the year November 2013, which pushed the market
size to $11 billion. The market since then has witnessed sharp rise and hence
become three times in size till 2014 with more than $36.5 billion. In the year
2016, the figures rose to $93.4 billion. And in the year 2017, it just almost
doubled. With increasing focus of global investors towards community and
environment issues, green bond market is expected to bring in new investors.
Table 1depicts the
explosive growth of green bond market over the years. Figure 1 portrays the
phenomenal growth of green bonds market over 11 years.
Table 1 Growth of Green Bonds Market
|
Year |
Amount (Billion USD) |
|
2007 |
0.8 |
|
2008 |
0.41 |
|
2009 |
0.9 |
|
2010 |
3.9 |
|
2011 |
1.21 |
|
2012 |
3.1 |
|
2013 |
11.04 |
|
2014 |
36.59 |
|
2015 |
42.4 |
|
2016 |
93.4 |
|
2017 |
188.7 |
Figure 1 Growth of Green
Bonds
Till 2015, India had no norms
for this niche segment of financial instruments, due to which, Indian investors
had no other option than tapping overseas market if they wanted to invest in
green bonds. It was only in the year 2016 wherein the market regulator SEBI had
approved new norms for issuance and listing of such securities on the stock
market. In the same year SEBI has published Green bonds guidelines wherein it
has clarified that the issuance and listing of green bonds will be governed by
the existing Issue and Listing of Debt Securities Regulations (ILDS), 2008
Greenko and Indian
Renewable Energy Development Agency Ltd have in the past issued green bonds for
financing renewable energy projects, without the tag of green bonds.
Institutional investors like mutual funds and pension funds also have appetite
to invest in debt markets which invest in green projects. In the year 2015,
India formally entered the green bond market. Entities like Yes Bank, Exim Bank
and CLP Wind farms and IDBI pioneered issues in green bonds. In February 2015,
India’s fourth largest private sector bank, Yes Bank raised INR 1000 crore from
10-year bond. The issue was oversubscribed almost twice times and the corpus
would be utilised towards renewable energy projects.
In March 2015, Exim Bank issued India’s first dollar denominated green bonds
and successfully raised $500 Million from green bonds. The issue was
oversubscribed 3.2 times and the proceeds would be utilised
towards funding eligible green projects. CLP Wind farms came up with first
Indian corporate green bonds raising INR 600 crore. IDBI Bank has raised $350
million from 5 year bonds. Besides these, Axis Bank
has launched India’s first internationally-listed and certified green bond on
London Stock Exchange and raised $500 million. The bank will utilise the proceeds in generating clean energy in both rural
and urban areas in India and outside. Green bonds issuance in India witnessed
record increase in the year 2016, amounting to Rs.18,131
crore which is equivalent to $2.7 billion, making it the seventh largest green
bond market globally.
CONCLUSION:
Green bonds are at the top of
their game with growth and acceptability they are receiving globally. Companies
should take an opportunity to imbibe the benefits of such bonds in their
capital funding. Hence, issuance of green bonds in capital markets globally
would reap following advantages:
1.
Enhanced
public image about the issuer: It would display issuer’s commitment towards
sustainable development and thus generate positive sentiments towards the firm.
2.
Diversified
Portfolio: Investment in green ventures will definitely lead to a diversified
portfolio. This segment of financial instrument will attract socially
responsible investors’ community, which might not be willing to tap the regular
bond market.
3.
Pricing
Benefits: There has been a paradigm shift in the perception of investors in
terms of green investment opportunities across the globe.Green bond issues attracta
wider investor base and thus has an advantage of being better priced as
compared to a regular bond.
Indian regulators,
policymakers, corporate houses along with other institutionsshould
collectively work towards making the market more resilient and investor
friendly to attract investors from all verticals. This would not only tap the
potential of green bonds market in India but also unleash emerging
opportunities in addressing climatic change issues.
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green bond bandwagon. Global Capital.
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Received on 10.02.2018
Modified on 18.02.2018
Accepted on 28.02.2018
©A&V Publications All
right reserved
Asian Journal of Management.
2018; 9(1):730-732.
DOI:
10.5958/2321-5763.2018.00113.0