BharatNotes What is Green Bonds?
Green bonds are debt securities through which a government, bank or company raises money specifically to fund projects with environmental benefits. The borrower pays interest and repays principal exactly like a conventional bond, but commits — usually under an independently reviewed framework — to channel the proceeds only into eligible "green" expenditure such as renewable energy, energy efficiency, clean transport, pollution control and climate-change adaptation.
The instrument was pioneered by the European Investment Bank, which issued the world's first Climate Awareness Bond in July 2007, followed by the World Bank's first labelled green bond in 2008.
Key features
- Use-of-proceeds earmarking: Funds are ring-fenced and tracked separately, with periodic reporting on allocation and impact.
- External review: Frameworks are typically validated by a Second Party Opinion (SPO). India's Sovereign Green Bond Framework received a "medium green" rating from CICERO and is aligned with the ICMA Green Bond Principles.
- The "greenium": Investors often accept a marginally lower yield, reducing the issuer's borrowing cost. India's debut 10-year SGrB priced at a greenium of roughly 5-9 basis points over comparable G-Secs (Jan-Feb 2023).
- Exclusions: India's framework expressly excludes fossil-fuel projects and biomass plants sourcing feedstock from protected areas.
India's Sovereign Green Bonds
India's framework was released on 9 November 2022 and covers nine eligible categories spanning renewable energy, energy efficiency, clean transportation, climate adaptation, sustainable water and waste management, pollution prevention, terrestrial and aquatic biodiversity, and green buildings.
| Item | Detail (as verified) |
|---|---|
| Framework released | 9 November 2022 |
| Maiden issuance | ₹16,000 crore (Jan-Feb 2023), in 5-year and 10-year tranches of ₹8,000 crore each |
| FY 2024-25 issuance | ₹20,000 crore across four tranches (10-yr and 30-yr) |
| FY 2025-26 plan | Sovereign Green Bonds part of the dated-securities borrowing calendar (PIB H1/H2 FY26 plans) |
| External rating | CICERO "medium green" SPO; ICMA Green Bond Principles aligned |
Eligible expenditures are limited to government spending incurred up to 12 months before issuance, with proceeds to be allocated within 24 months. The RBI auctions these as G-Secs and they have been opened to foreign investors via the Fully Accessible Route.
Corporate green bonds and SEBI
For listed companies, SEBI first issued a framework for "green debt securities" in 2017, revised it in 2023 to require independent third-party review and curb greenwashing through detailed "dos and don'ts," and in 2025 folded it into a wider ESG-debt framework covering social, sustainability and sustainability-linked bonds.
UPSC angle
For Mains GS3, green bonds illustrate how India finances its climate commitments (net-zero by 2070; expanded non-fossil capacity targets) without crowding out the fiscal space — a classic "mobilising resources for sustainable growth" theme. For Prelims, focus on the issuer (Centre via RBI), the greenium, the use-of-proceeds principle, and distinguishing green bonds from masala bonds (rupee-denominated offshore bonds) and blue bonds (ocean-focused). Cross-paper relevance extends to GS3 environment (climate finance, SDGs) and Essay (sustainable development).
