India's green bonds show policy focus on climate mitigation: Fitch Ratings

Chennai, Feb 10

The sovereign green bonds issued by India reflects the growing policy focus to scale up domestic financing capacity on climate mitigation and adaptation, said credit rating agency Fitch Ratings on Friday.

"We expect the bonds to be held largely by domestic investors, incentivised by the national climate policy to mobilize financing resources for green activities," Fitch Ratings added.

The first issuance in January 2023 comprised two tranches, with five-and 10-year maturities, totalling Rs 80 billion (USD one billion). A second offering, also comprising two tranches with five- and 10-year maturities raised an additional Rs 80 billion on February 9.

Proceeds from the sovereign green bonds will go towards projects that meet India's decarbonisation targets, which include achieving net-zero emissions by 2070, reducing emissions intensity of gross domestic product (GDP) by 45 per cent by 2030 over 2005 levels, and increasing the share of non-fossil fuel energy resources to 40 per cent by 2030, the credit rating agency added.

The Indian government published its Sovereign Green Bond Framework in October 2022, aligning itself with the International Capital Market Association's Green Bond Principles. The framework identifies how the proceeds from green bonds will be allocated to projects such as renewable energy, energy efficiency, clean transportation, sustainable water and waste management, and green buildings.

The outstanding amount of GSSS1 (Green Social, Sustainability and Sustainability linked) bonds issued by Indian entities stood at $19.17 billion by December 2022, making up roughly 3.8 per cent of the overall outstanding corporate bonds in India. In terms of issuance, green bonds accounted for the majority of labelled bonds issued in India, accounting for a total of $20 billion by January 2023, said Fitch Rating.

Indian green bond issuers are heavily concentrated in the energy sector, dominated by large energy companies using the proceeds to build renewable energy projects, particularly solar.