The Green Bond concept was developed in 2007/2008 as a response to increased investor demand for engagement in climate-related opportunities. It is an investment vehicle that integrates the fiduciary element of Fixed Income products with climate mitigation and adaptation awareness, giving mainstream investors access to climate-related investment opportunities.

In a world where there is ever-increasing awareness on climate concerns, the Green Bond is a tool that raises industry engagement by encouraging investments in sustainable projects, processes and technologies with a transparency that allows investors to understand the challenges and thus diversify risk.

Though the concept of Green Bonds is almost a decade old, it is in the last three years that one has witnessed a significant traction in the Green Bonds issuance worldwide. Most of the fossil energy in India is coal-based, hence renewable energy has become an area of high priority in recent times. However, renewable energy is more capital intensive compared to fossil energy, hence it requires a well-directed financing structure to enhance its utilisation.

Green bonds are part of alternate funding options which are available in the market to finance projects of ‘green’ purposes. To elaborate it further, Green bond is a type of bond instrument, where the proceeds will be exclusively applied/utilised to finance or re-finance, in part or in full, new and/or existing eligible Green Projects, and which are aligned with the core components of the Green Bond principles.

However, the definition of Green Bond and Green Project varies, depending on the sector and geography. Generally Green Projects aim to address the key areas of concern such as climate change, natural resources depletion, loss of biodiversity and/or pollution control.

Eligible Green Projects for Green Bonds issuance
Decoding the Green Bonds principles

The International Capital Markets Association (ICMA) has a set of green bond principles which are practised worldwide. Primarily, the Green Bonds principles are based on 4 core components - Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds and Reporting.

  • Use of Proceeds


The cornerstone of a Green Bond is the utilization of the proceeds of the bond for Green Projects, which should be accurately described in the bond documentation. All designated Green Project categories should provide clear environmental benefits, which will be assessed and, wherever feasible, quantified by the issuer.

  • Process for Project Evaluation and Selection


The issuer of a Green Bond should outline:

  • Process to determine the eligibility to qualify for Green Projects categories
  • Related eligibility criteria
  • Environmental sustainability objectives


  • Management of proceeds

The net proceeds of Green Bonds should be credited to a sub-account or moved to a sub-portfolio or otherwise tracked by the issuer, in an appropriate manner and attested by a formal internal process, linked to the issuer’s lending and investment operations, for Green Projects.

  • Reporting


Issuers should make, and keep, readily available up to date information, on the use of proceeds. This should include a list of the projects to which Green Bond proceeds have been allocated, as well as a brief description of the projects and the amounts allocated, and their expected impact.

These Green Bond Principles encourage a high level of transparency and recommend that an issuer’s process for project evaluation and selection be supplemented by an external independent review. Also, it helps create a standard structure for the issuance of these bonds globally.

Global Green Bond Scenario

The world’s first Green Bond was issued in 2007 with an AAA investment grade issuance from multilateral institutions viz. European Investment Bank (EIB) and World Bank. With growing investor emphasis on sustainability, green bonds are one of the fastest growing market segments internationally in the last couple of years. Around USD 36.5 billion of green bonds were issued in 2014, almost tripling 2013 total green bond issuance followed by a record of USD 41.8 billion green bonds issuance in 2015. The year 2016 has witnessed the highest green bonds issuance globally clocking USD 61.9 billion till the end of the month of October. (Source: Climate Bonds Initiative2016)

Source: Climate Bonds Initiative


The CY 2015 saw a wider range of issuers and types of Green Bonds. There was a widening of the type of projects financed by Green Bonds with more proceeds leveraged for other green sectors outside of the renewable energy space, in particular low carbon transport and sustainable water.

Source: Climate Bonds Initiative 2016


Indian Green Bond Scenario

India is now the 7th largest labelled green bond issuer with USD 2.7 billion issued as of October 12, 2016 – most of this has been issued in 2016.

Source: Climate Bonds Initiative 2016

India gets maximum of its energy from coal, it being one of the largest coal reservoirs in the world, there is a need to utilize the renewable sources available in order to curb the ever rising need for power. The government has set a target of achieving 100 GW generation of solar energy and 60 GW of wind energy. Renewable energy demands more funds for initial infrastructure and support in the form of incentives and policies from the government. Starting the trend to support the government to achieve the set target, many banks and power generation companies issued green bonds in the Indian market.

In order to promote and support the Green Bond market, SEBI came out with a consultation paper on December 03, 2015 and based on the feedback received from industry bodies, merchant banks, banks, law firms, individuals etc., issued the “Disclosure Requirements For Issuance And Listing of Green Bonds”. The guidelines were mostly recommendatory in nature and in-sync with the international practices for issuances of Green Bonds.

Outlook for Indian green bonds

USD 2.5 trillion is required to meet India’s climate change mitigation targets by 2030 and approximately USD 1 trillion investment is required every five years to meet the demand.  Around half of the total investment is expected to come from the private sector.  As bank balance sheets become increasingly constrained by sector exposure limits and capital ratio requirements, capital markets are expected to play a bigger role.

IL&FS – Issuance of Green Bonds

Having played a pivotal role over the years in the country’s infrastructure development and providing financial support, IL&FS Group considers itself committed to facilitate funding of projects that are eco-friendly and plays an important role in lowering carbon emission. The Group has been responsible for the commissioning of 726.6 MW gas-based power project in Tripura (ONGC Tripura Power Company Limited (OTPCL)), one of the biggest Clean Development Mechanism (CDM) projects in the world, which will mitigate over 1.6 million tonnes of carbon-dioxide emissions per year.

Taking a further step towards this, the Group came out with its maiden “Green Bond” issue on September 30, 2016, wherein IL&FS Wind Energy Ltd. issued Green Bonds aggregating to ~ USD 30 million.

IL&FS Group, which has one of the largest wind energy portfolio with an operating capacity of 750 MW, has good potential for future issuances of Green Bonds. Considering its huge portfolio of renewable energy assets, comprising of Wind Energy, Solar Energy, Biomass Energy and Bagasse assets, IL&FS Group is confident of supporting Green projects, building a brighter future for energy generation through renewable sources in the country.

Authored by
Santosh Swamy
EVP – Debt Structuring & Distribution, IFIN




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