So far 12 govts have made 23 green bond issues, for $47.5 b
The government is keen on coming out with a sovereign bond issue for the first time, to raise somewhere in the neighbourhood of $10 billion. Some experts are urging the government to make it a sovereign green bond issue.
A big backer of such a move is Sean Kidney, Co-founder and CEO of Climate Bonds Initiative, a NGO set up with funding from banks such as HSBC and Bank of America and other organisations like Rockefeller Foundation for mobilising debt finance for climate solutions.
He wants the government to come out with a $10-billion green bond issue, which will make “an incredible splash” in the world markets.
Green bonds are similar to other debt instruments except that their use for green projects is confirmed by third party certifying agencies. There are funds that will not invest in non-green projects — so these will crowd into green bond issues. “India will then seize the global political leadership,” Kidney told Business Line, noting that in doing so, India would beat China, which is the second biggest green bond issuer but has never issued a sovereign green bond.
China has a much higher external debt to GDP ratio, of around 14 per cent, compared with India’s 2.6 per cent. An Indian sovereign issue could get a better rating and therefore a better price.
Asked if India would get a better price, Kidney said, “nothing is certain in the bond market, but we are seeing the beginning of price advantage in sovereigns.”
France, The Netherlands and Chile got “greenium” (green premium or a better price) for their bonds, he said, adding that India could get one too.
For green bonds issue, the government would have to get it certified by agencies that the proceeds will be used for climate-friendly projects. All renewable energy, better transport and water projects will qualify, Kidney said.
Data provided by Climate Bonds Initiative shows that so far 12 governments have made 23 green bond issues, for $47.5 billion. Notably, of this, $18.4 billion came in the first half of 2019.
The Netherlands borrowed €5.98 billion in May. According to a Bloomberg report, it was the first sovereign green bond ever sold by a triple-A rated country and it attracted subscriptions worth €21.2 billion in less than two hours of opening.
Kidney is not alone in calling upon the government to issue a green sovereign. Nathan Fabian, Chief Responsible Investment Officer at Principles for Responsible Investments, a United Nations-supported NGO, is also in favour of such an initiative.
“Global investors sometimes struggle to understand the opportunities in India, but the Indian government can build confidence and interest of global investors with a certified green bond issue of its own,” Fabian told Business Line in an email.