Green bonds are a type of fixed-income investment specifically designed to fund eco-friendly projects. From renewable energy and sustainable housing to clean transportation, these bonds help fight climate change while offering stable returns to investors. With global awareness rising around sustainability, green bonds have become a popular choice for those looking to make an impact through their money. In recent years, green bonds in India have gained momentum, backed by government and regulatory support. But before investing, it’s important to understand what is green bonds and how they work.
What Is Green Bonds?
Quite simply, green bonds are debt instruments issued by governments, corporations, or financial institutions. What sets them apart is a promise: proceeds are earmarked exclusively for projects with environmental benefits like renewable energy, sustainable transportation, water conservation, or eco-friendly buildings.
These bonds follow voluntary global standards, like the Green Bond Principles from the International Capital Market Association (ICMA). These guidelines ensure transparency around where funds go and how they’re tracked.
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Why Investors and Issuers Choose Green Bonds
- Environmental impact: They fund meaningful projects – solar parks, wastewater systems, green buildings, and more.
- Stable returns: Structured like traditional bonds, they provide fixed-income reliability.
- Transparency and integrity: Standards and third-party audits guard against “greenwashing”.
- Policy support: Many governments offer incentives tax benefits, subsidies, or easier regulatory treatment.
Green Bonds in India – A Growing Market
India’s journey with green bonds began in 2017. Since then, more than 20 issuers have raised ₹61.28 billion (INR) by mid-2025. Significant milestones include:
- Sovereign green bonds: The Indian government has issued eight tranches totalling ₹477 billion (≈ $5.7 billion) since January 2023.
- Municipal issuances: Pune’s Pimpri-Chinchwad Municipal Corporation launched ₹200 crore green municipal bonds at 7.85% in June 2025, oversubscribed by over 5×. Following this, Nashik also announced a ₹200 crore issuance for sewage infrastructure.
By December 2024, India’s aligned GSS‑plus (green, social, sustainability bonds) issuance had reached USD 55.9 billion making India the 4ᵗʰ largest emerging‑market issuer globally.
SEBI’s Regulatory Framework
Understanding green bonds in India means knowing the rules set by SEBI:
- First set of guidelines issued in 2017 with disclosure norms (use of proceeds, project selection, and ongoing obligations).
- In December 2024, SEBI updated regulations to bring ESG debt under stricter scrutiny for third-party review, both before and after issuance.
- Eligible categories include renewable energy, sustainable transport, water management, green buildings, biodiversity, and waste-to-energy projects.
These rules build trust and attract institutional and retail investment into green bonds in India.
How Green Bond Issuance Works
- Issuance planning: The issuer identifies green projects and aligns with global or local standards.
- Third-party review: A verifier assesses the project’s eligibility and framework.
- Offering documents: Must detail environmental goals, project descriptions, fund usage, and reporting protocols.
- Allocation and tracking: Proceeds are tracked separately and used only for green purposes.
- Reporting: Periodic disclosures show fund allocation and environmental impact.
- Maturity: The bond is repaid as per terms principal plus interest ensuring that financial returns align with environmental responsibility.
Global Scale and India’s Ambition
Globally, the green bond market is booming, reaching USD 670.9 billion in issuance in 2024 alone with total outstanding GSS+ at over USD 6 trillion. In India, sovereign initiatives backed by frameworks from the World Bank and domestic green finance guidelines are fast-tracking investment into sustainable infrastructure.
Benefits of Green Bonds for Investors
- Dual returns: Earn fixed income while supporting the environment.
- Stable performance: Similar risk-return to conventional bonds, often with attractive coupon rates.
- Credibility: Third-party oversight ensures proceeds are used for genuine green impact.
- ESG alignment: Fits well into portfolios aiming for sustainable or responsible investments.
Risks and Challenges
- Greenwashing: Mislabelled bonds can undermine trust-growing standards aim to fix this.
- Complex issuance: Requires disclosures, auditing, and certification.
- Liquidity concerns: Some municipal green bonds may trade less frequently.
- Market volatility: Bond returns fluctuate with interest rates and credit risks.
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Comparing Green Bonds with Other Instruments
| Feature | Green Bonds | Traditional Bonds | Sustainability-Linked Bonds (SLBs) |
|---|---|---|---|
| Use of proceeds | Only green projects | Any business usage | General or ESG-linked |
| Third-party review | Required in many jurisdictions | Not mandatory | Often required |
| Coupon adjustment | Fixed | Fixed | Variable based on sustainability targets |
| Reporting | Transparent & periodic | Standard financial reports | Linked to ESG performance metrics |
| Investor appeal | ESG-focused investors | General fixed-income investors | Both ESG & yield seekers |
Green bonds ensure funds support environmental projects directly, while SLBs tie financial returns to sustainability targets, but proceeds may not be ring-fenced.
How to Invest in Green Bonds
- Sovereign green bonds: Issued by the Government of India, available via primary auctions or secondary markets.
- Municipal green bonds: Listed on exchanges like BSE or NSE e.g., PCMC’s ₹200 crore issue.
- Corporate green bonds: Issued by companies like Adani Green Energy.
- Green bond ETFs/funds: Simplified access through pooled investment structures.
The Future of Green Bonds in India
- Expanding issuance by states and municipalities (e.g., Nashik’s upcoming ₹200 crore bond).
- Strong global demand, India ranked 4ᵗʰ in emerging-market green issuance.
- Evolving SEBI guidelines will further strengthen transparency, integrity, and investor trust.
Why Green Bonds Matter Today
Green bonds channel capital into projects that combat climate change and secure sustainable infrastructure. They are vital for:
- Meeting India’s climate goals (net zero and carbon targets).
- Mobilising private capital into public-good projects.
- Giving investors agency to support environmental progress.
Conclusion
As the world shifts toward sustainability, green bonds are emerging as a smart way to invest responsibly. They not only offer returns like traditional fixed-income instruments but also support crucial environmental initiatives like clean energy, water conservation, and climate change mitigation.
For Indian investors, the rise of green bonds in India especially government-backed and SEBI-regulated issues adds credibility and accessibility. Whether you’re an institutional investor or a retail participant, knowing what is green bonds and how they work can help align your portfolio with future-focused, impact-driven goals.
Frequently Asked Questions – FAQs
1. What is green bonds?
Bonds dedicated to environmentally beneficial projects like renewables, clean transport, and water management.
2. What is green bonds in India?
SEBI-regulated issuances by government, municipal or corporate bodies with green disclosures and certifications.
3. What is green bonds framework in India?
SEBI’s 2017 and updated 2024 regulations set out disclosure norms, project eligibility, and third-party reviews.
4. How are green bonds different from regular bonds?
Proceeds are specifically ring-fenced for environmental projects and must be audited, unlike traditional bonds.
5. Are green bonds safe investments?
They offer similar issuer risk and returns as regular bonds, with added environmental benefits but always check credit ratings, liquidity, and transparency reports.
Author: All Content is verified by SMC Global Securities.
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