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Sovereign Green Bonds: Fuelling India’s Sustainability Revolution 

India's Sustainable Revolution

In the fiscal budget of FY23, the finance minister announced India’s plan to issue sovereign green bonds to finance public sector initiatives aimed at reducing carbon intensity. The introduction of India’s first sovereign green bonds represents a significant step towards sustainability, aligned with the country’s five critical climate action elements known as “Panchamrit”, as outlined by the Prime Minister during COP26 in 2021. These elements include achieving 500GW non-fossil energy capacity, sourcing 50% of energy from renewable sources, reducing anticipated carbon emissions by one billion tonnes by 2030, decreasing carbon intensity by 45%, and attaining net-zero emissions by 2070, as per the Paris Agreement (Framework for SGB, Ministry of Finance). Additionally, India launched the LIFE movement at COP26, promoting responsible utilisation of natural resources. Green bond issuance reflects India’s commitment to environmentally sustainable projects and contributes to the broader goal of maintaining sustainability.

Understanding Green Bonds

Bonds represent fixed-income instruments the corporate sector or government issued to fund projects, clear debts, or expand business, offering a specified interest rate returned by the issuer at maturity. In contrast, green bonds are financial instruments that support environmentally sustainable projects, typically offering lower capital costs than regular bonds. The International Capital Market Association (ICMA) defines a green bond as explicitly used to finance or refinance eligible green projects, resulting in environmental benefits. Essentially, they are a debt instrument involving significant fixed-income borrowing by corporations, governments or institutions to fund green initiatives and promote ecological conservation (Agarwal, 2023; Goldman Sachs, 2023).

Green Bond Principles

The Green Bond Principles (GBP), regularly updated by the International Capital Market Association, maintain transparency and guide issuers to align with the four critical components of GBP while issuing a green bond (Goldman Sachs Asset Management, 2023). In January of this year, the government released the green bonds adhering to the guidelines mentioned under GBP. These components encompass a green bond framework, including details on the use of proceeds, the process for project evaluation and selection, management of proceeds, and reporting. The Indian government intends to utilise Sovereign Green Bonds (SGrB) funds to partially or fully support the expenses associated with eligible green projects falling within the defined ‘Eligible Categories’. Figure 1 represents a list of eligible categories as defined in the SGrB framework. 

Fig.1: Eligible Categories under green projects as defined in the SGB framework    

Source: Framework for SGB, Department of Economic Affairs, Govt. of India

Advantages of SGBs

Indian sovereign green bonds not only contribute to sustainability goals but also serve as a means to strengthen the Indian currency. Issued in local currency within the global market will attract predominantly domestic investors, augmenting funds within the central bank. This surge in funds reflects the confidence and trust that investors place in the Indian currency, thereby reinforcing its stability.

Investors increasingly favour projects contributing to sustainable development as demand grows for socially responsible and environmentally sustainable investments. The heightened demand of investors, coupled with a limited supply of green bonds in the market, can elevate the price and yield of green bonds. Additionally, offering higher yields than traditional debt instruments, green bonds can help boost foreign investment while mitigating currency risk associated with fluctuations in the foreign exchange rates affected by geopolitical and economic conditions abroad. By issuing these bonds in rupees, India reduces exposure to such volatility and contributes to the stability of the local currency (Phillips et al., 2023).

Selection of projects for SGBs

The Green Finance Working Committee (GFWC), established by the Ministry of Finance and chaired by the Chief Economic Advisor, oversees the issuance of sovereign green bonds. The committee’s responsibilities include selecting eligible green projects, reviewing allocation within 24 months, addressing postponed or cancelled projects, and supervising the issuance of an annual report. 

Fig. 2: Procedure followed in selecting green projects every year by the Government of India

Source: Framework for SGB, Department of Economic Affairs, Govt. of India

Project selection criteria adhere to the GBP, United Nations Sustainable Development Goals (SDGs), and national policies. Annually, the Ministry of Environment, Forest and Climate Change (MoEFCC), Ministry of Housing and Urban Affairs (MoHUA), Ministry of New and Renewable Energy (MNRE), and Ministry of Agriculture and Farmers’ Welfare (MoAFW) collaborate to select new green projects. Additionally, other ministries are invited to provide fresh ideas annually. 

The budget division of the ministry submits projects approved by GFWC for bond issuance through the Reserve Bank of India (RBI). These bonds, known as sovereign green bonds, are issued by the central bank to finance green initiatives. The Ministry of Finance maintains a green register containing bond details to monitor these bonds. Notably, the ministry releases an annual report on these projects, detailing bond issuances, approved projects, allocated expenditures, current statuses, and potential impacts on reducing carbon intensity.

Navigating challenges with green bonds 

The proliferation of green bonds has been notable, yet India must expand its sources of green finances to meet its target (OECD, 2023). According to the ORF report, India’s anticipated green financial requirement until 2030 stands at US$170. While green bonds offer positive environmental impacts, they encounter several challenges:

  1. Lack of awareness: Developing economies with emerging green bond markets face a significant hurdle due to insufficient awareness about the principles and benefits of green bonds. Investors require a comprehensive understanding of the standards that define green bonds, as ambiguity may deter their engagement. Conversely, informing investors about green bonds’ financial returns and environmental benefits is imperative for seizing opportunities, including government incentives or subsidies that promote investment in green initiatives. These challenges contribute to lower investor participation in green finance projects in developing economies.
  1. Lack of standardised selection procedure: Challenges such as rigorous green bond certification processes pose obstacles for investors, especially in meeting stringent requirements for project verification and environmental standards with limited resources and infrastructure, particularly in developing nations.
  1. Limited credibility of projects: The absence of specific regulations for green bonds leaves investors unable to assess the financial risk associated with the bonds and understand sustainability for long-term development investments. Distinctions between conventional and green bond regulations raise concerns about the legitimacy and credibility of such projects over time (Alsmadi et al., 2023).

The Global Experience with Green Bonds

The green bonds market has seen a remarkable surge, soaring from $36 billion in issuances to $270 billion in 2020 (World Economic Forum, 2023). This growth reflects a global shift towards sustainable initiatives, prompting industries to embrace the expansion of green capital. Despite India facing unique geographical and institutional challenges distinct from other nations, there are opportunities to adopt initiatives that address these hurdles. Below, we delve into an examination of policies in both advanced and emerging economies.

  1. Developing Nations- Emerging Landscape of Green Projects:

Despite facing challenges, even emerging economies such as Fiji, Indonesia, Egypt, and Malaysia have enthusiastically adopted sovereign green bonds (World Bank, 2023). Their attempt to enter the green finance market inspires other developing nations to formulate and implement policies to expand green projects globally. This strategic transition has significantly increased nations’ global green bond market share over the past five years. However, countries like Vietnam still need help with legal mechanisms despite their commitments to sustainable development (East Asia Forum, 2023).

  1. Developed Nations- Major Contributors in the Green Bond Market:

Specialised efforts such as advocacy and outreach highlight the advantages of green bonds and their positive environmental impact. For instance, the UK Green Finance Institute actively promotes green finance by collaborating with governmental bodies, financial institutions, and businesses to advance the green finance agenda. Similarly, Germany, facilitated by the KfW development bank, participates in green bond initiatives, financing renewable energy, energy efficiency, and environmental sustainability projects. Recommendations advise implementing effective regulations tailored to the green bonds market. 

In light of geopolitical dynamics and fluctuations in fossil fuel prices, enhanced state support is essential to foster the development of green projects. The achievements of Scandinavian nations in advancing green initiatives, attributed to their robust business culture, sustainability-oriented financial institutions, and expansive, diversified corporate sector, serve as a noteworthy example for global consideration (Torvanger et al., 2021).

The Way Forward for India 

Improving the Indian government’s approach to green bonds necessitates incorporating the following policy changes regarding their issuance:

  1. Enhancing transparency: Augmenting transparency in green bond issuance and viability is paramount in surmounting existing challenges.
  2. Conducting specialised awareness programs: Organisations can design specialised initiatives to promote the advantages of investing in green projects. Introducing educational programs on green bonds is essential to raise awareness among investors. Platforms like the Luxembourg Green Exchange (LGX) exemplify transparency and visibility for investors in various green securities. Government policies emphasising investor protection, financial transparency, and price regulation are crucial for promoting the adoption of these bonds.
  3. Improving risk mitigation: Reducing various risks, including legal, default, liquidity, inflation, political, interest rate, and investment risks, necessitates carefully establishing an environment favourable to private investors. Implementing a robust legal framework regarding defaulters will instil investor confidence, mitigating default risk associated with such projects. Maintaining a stable economic environment with low interest rates and optimal inflation rates is crucial for attracting investors.
  4. Focusing on domestic capital generation: Besides emphasising offshore investments, the Indian government should prioritise the establishment of a green capital pool to stimulate domestic demand. Research indicates that countries exhibiting higher issuance rates of green bonds are better positioned to achieve their sustainability goals, particularly in renewable energy expansion and carbon emission reduction (Alamgir, 2023).
  5. Issuing investment mandates: Drawing from Moid’s (2017) research, the integration of green projects into institutional investors’ portfolios, with potential involvement from Indian institutions such as the Pension Fund Regulatory and Development Authority (PFRDA) and the Insurance Regulatory and Development Authority (IRDAI), holds promise. Studies indicate that such a strategy could effectively mobilise capital towards sustainable investments.
  6. Adherence to international standards: Besides aligning with the sustainable development goals signed by member countries, government-issued SGBs should adhere to international practices outlined by the United Nations. Failure to do so may undermine investor confidence. Establishing a transparent and trustworthy environment is crucial for ensuring long-term success and achieving quality standards.
  7. Guidance from RBI: It is essential to establish standardised guidelines for international investors to enhance their focus on green initiatives. Financial institutions, including central banks, can significantly contribute by mobilising resources for investors and offering timely advice on sustainable investment prospects. Emphasising the potential expansion of green bonds and highlighting the significance of collaboration between issuers and investors is imperative for promoting environmentally friendly investment practices.

By implementing these strategies, the Indian government can effectively address the challenges associated with green bonds and foster a conducive environment for sustainable investments.


Government-mandated disclosure standards for sustainability practices are crucial for instilling trust in green bonds. A robust sustainability reporting framework streamlines green bond issuance, enhancing their reliability. Through cooperative initiatives between the government and regulatory bodies, India’s impact on the global green bond market can significantly evolve. These entities must proactively educate investors about the advantages and risks linked to sustainable investments while ensuring they have the requisite knowledge and tools for informed decision-making. Tackling these challenges fosters increased investment in green initiatives and advances sustainable progress.


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  3. Alsmadi, A. A., Al-Okaily, M., Alrawashdeh, N., Al-Gasaymeh, A., Al-hazimeh, A. M., & Zakari, A. (2023). A Bibliometric Analysis of Green Bonds and Sustainable Green Energy: Evidence from the Last Fifteen Years (2007–2022). Sustainability.
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Geeta Shreeprabha

Geeta Shreeprabha, a research associate at the Arun Jaitley National Institute of Financial Management, possesses a master’s in Econometrics from the University of Madras coupled with under graduation from Patna Women’s College. Committed to exploring innovation, sustainability, social development, public policy, and finance through research, she has contributed to “Self-Reliant India: Opportunities and the Way Forward.” Driven by a humanitarian spirit, Geeta aspires to leverage her expertise for societal advancement and positive change.