Why should you care? ♻️
We saw numerous times how green bonds are the backbone for sustainable finance and are essential for climate change.
In a previous news release, I argued that Asia was an interesting and growing market.
But here’s the twist for one of the majors players in the field: India’s latest issuance of green bonds saw a 70% shortfall in demand.
How did this happen?
Let’s look at the numbers
India’s Reserve Bank (RBI) recently offered a 10-year green bond, targeting sustainable infrastructure projects.
The result? Only 30% of the bond found takers, about 15 billion rupees ($177.53 million), leaving 70% unsold—the first such devolvement since February 2023.
How come? There might be a couple of reasons, actually:
High yield competition: Traditional government bonds currently offer higher or similar yields due to rising interest rates, making green bonds less attractive despite their sustainable appeal.
Unclear market policies: Investors expressed concerns about the lack of transparency and regulatory incentives for green finance in India.
Private sector hesitation: Despite India’s ambitious renewable energy goals, private players remain cautious about long-term commitments in a volatile financial climate.
The 10-year benchmark bond yield was slightly higher at 6.80%
"They are not comfortable with yields rising above the prevailing paper," stated VRC Reddy, treasury head at Karur Vysya Bank, in reference to the central bank's desire for some kind of "greenium" to sell these bonds.
The lower returns that investors are willing to take for these securities—which are meant to fund environmentally beneficial projects—are referred to as "greeniums."
Through the sale of green bonds, which were priced 5–6 basis points below government bond yields, the government raised 160 billion rupees in fiscal 2023. In fiscal 2024, the government raised 200 billion rupees at yields that were 1-2 basis points lower than the going rate.
At the time of this writing, India’s green bond market, while growing, represents less than 1% of the global market, highlighting the need for stronger policy frameworks to attract investors.
Lesson learned
This green bond shortfall is a wake-up call for policymakers, businesses, and investors alike. For India to meet its ambitious target of 500 GW of renewable energy capacity by 2030, a robust green finance market is non-negotiable.ù
What’s your take?
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