Monday, 17 July 2017

Green Bonds - the Greener Way of Financing

By Drishti


There is a surge in the new financial instrument called a Green bond. A green bond is a tax-exempt bond issued by federally qualified organizations or by municipalities for the development of brownfield sites. Green bonds are short for qualified green building and sustainable design project bonds. These bonds are created to encourage sustainability and the development of brownfield sites. More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, sustainable water management, and the cultivation of environmentally friendly technologies.

Since 2016, the issuance of these bonds soared to a record high, accounting for $93.4 billion worth of investment worldwide, according to the latest report from ratings agency Moody’s. The issuance is expected to surge to more than $200 billion in this year.

The World Bank is a major issuer of green bonds. The institution has been very active through 2016, especially in the United States, where its issuances total over $500 million in U.S. dollars, and in India, where its issuances total over $2.7 billion Indian rupees. World Bank green bonds finance projects around the world, such as India's Rampur Hydropower Project, which aims to provide low-carbon hydroelectric power to northern India's electricity grid.

Indian firms like Indian Renewable Energy Development Agency Limited and Greenko have issued bonds that have been used for financing renewable energy without the tag of green bonds. Recently, Hyderabad-based Greenko Group which raised $500 million by selling green bonds to overseas investors, marking India's first high-yield issuance of its kind.  The clean energy firm, backed by Singapore's sovereign wealth fund GIC and one of the shortlisted contenders to buy SunEdison's Indian assets, plans to use the proceeds to refinance debt and meet transaction or operating expenses.  Greenko Investment Company, backed by parent guarantor Greenko Energy Holdings, issued these securities, which will be listed on the Singapore Stock Exchange. 



“Sustainable investing strategies will likely continue to grow as demand rises,” The common aim is to generate long-term competitive financial returns while simultaneously achieving a positive social impact.” 


The Adani Group, IL&FS Energy, NYSE-listed Azure Power and even Continuum Energy are in various stages of issuing bonds with an aim to cumulatively raise $2 billion this fiscal alone, said industry watchers. Global capital is also drawn to the ambitious commitment of the Narendra Modi government — a signatory to the Paris climate accord —to expand renewable power capacity, and one that is keen to invest close to $150 billion to meet the 2022 targets of 175 GW output from the current capacity of 57 GW.


So, it’s time now to taste the success launching what are “green bonds”, a relatively new way to finance renewable energy projects.

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