Greenium and Sovereign Green Bonds:
India’s sovereign green bond market is gaining traction as strong investor demand has pushed green bonds to trade at a persistent greenium over comparable conventional government securities.
- The average greenium in the first half of FY27 reached its highest level since India began issuing sovereign green bonds in FY2022-23. The trend indicates that the market may be able to absorb a larger supply of green bonds in the second half of FY27.
- Greenium’ (green premium) refers to the lower yield (interest rate) that investors are willing to accept on a green bond that finance environmentally sustainable projects compared to conventional government securities.
- Since bond prices and yields move inversely, a lower yield means investors are willing to pay a higher price for green bonds, reflecting their preference for environmentally sustainable investments.
- Stable Greenium lowers the overall cost of borrowing for the government, allowing it to finance large-scale renewable energy, electric mobility, and adaptation projects needed to meet India’s Net Zero by 2070 targets economically.
- A consistent greenium spread demonstrates a maturing domestic green finance ecosystem and sustained investor confidence in the credibility of India’s green taxonomies and Environmental, Social and Governance (ESG) project evaluation.
- Sovereign Green Bond are government debt instruments introduced in the Union Budget 2022-23 to finance projects that support India’s transition towards a low-carbon economy.
- The funds raised are earmarked exclusively for eligible green projects, promoting transparency and accountability in their utilisation.
- The SGrB Framework is aligned with the International Capital Market Association (ICMA) Green Bond Principles (2021), strengthening the credibility and transparency of India’s sovereign green bonds.
- SGrBs are issued through a uniform price auction, are eligible for repo transactions, and can be traded in the secondary market.
- SGrBs are also eligible for Statutory Liquidity Ratio (SLR) purposes, allowing financial institutions to count them towards their mandatory SLR holdings.
- The Finance Ministry released India’s first Sovereign Green Bond (SGrB) Framework in 2022, specifying the projects eligible for funding.
- To strengthen credibility, the framework was validated by Norway-based CICERO, which rated it ‘Medium Green’ with ‘Good Governance’, indicating alignment with the International Capital Market Association (ICMA) standards.
