Green bonds issuance fast turning red-hot

M. Ramesh | | Updated on: Oct 31, 2019
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These debt instruments are becoming more popular because many investors are gradually paring their investments in fossil fuel companies and shifting to green projects

The world seems to be bitten by the ‘green bond bug’.

In June, the global green bond issuance reached a milestone – $ 100 billion. It was the fastest hundred billion in any year.

But in only four months, the greens have dashed past the next milestone, as another $ 100 billion worth of bonds were issued.

What are Green Bonds?

Green Bonds are debt instruments for which authorised agencies have certified that the proceeds would be used for green projects, such as wind and solar energy plants or projects meant to reduce greenhouse gas emissions.

While Green Bonds do not necessarily offer better pricing — which is a matter of timing of the issue and rating of the issuer. They are becoming more popular because many investors are gradually paring their investments in fossil fuel companies and shifting to green projects. For example, the world’s largest sovereign (government-owned) fund, the Norwegian Pension Fund Global, which manages a trillion dollars, has decided to pull out of fossil fuel companies, and accordingly has been reducing its investments in coal and oil companies.

Two trends are notable with regards to the Green Bond issuance:

1. Most (a third) of the money raised goes to energy projects. This is followed by low carbon buildings (30 per cent) and low carbon transport (20 per cent). Chinese and Japanese companies, and the US housing finance company, Fannie Mae, are major green bond issuers.

2. The Governments are borrowing through this source. Till date, the biggest issuer is the Dutch State Treasury Agency, part of the Dutch Ministry of Finance, which raised $ 6.66 billion in May. French and Polish governments figure among the top ten issuers ever, raising $ 2.7 and $ 2.2 billion respectively. Many other governments have done too.

Sean Kidney, CEO of Climate Bonds Initiative, a not-for-profit body which words towards mobilising climate finance and tracks green bond issuance, has pitched for the Indian government to go for sovereign borrowing through rupee denominated Green Bond issuance. “Imagine the catalytic effect if India’s first sovereign bond for international investors was in rupees and green!” Kidney told BusinessLine . “Pricing advantage, unbelievable publicity to underline the government’s great work on renewables, railways, water,” he said, adding that India could get the better of China, which is yet to do a sovereign green bond issue.

Pick up in Indian issuance

Indian entities are slowing warming up to green bonds. In the first half of the year, there were just two issues, from Adani Green ($ 500 m) and Greenko ($ 950 m), and these were the first offerings after a gap of nine months.

However, after June, Indian issues seem to have gathered steam. Adani Green and Azure Power raised $ 362 m and $ 350 m respectively and ReNew Power picked up $ 90 m in the recent months.

Published on October 31, 2019

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