Green bonds have become a cornerstone of the national effort towards a prudent and sustainable low-carbon economyTheir primary goal is to mobilize large-scale capital resources for environmentally friendly projects, which drive sustainable growthThey are a key tool for bridging the financing gap in sustainable development as the nation strengthens its commitment to climate protection.

What are green bonds?

Simply put, green bonds are debt securities specifically designed to finance activities that contribute to creating positive environmental impactsThese activities include, for example:

• Renewable energy sources
• Energy efficiency
• Climate-resilient infrastructure

How do green bonds channel funds into green projects?

Green bonds work similarly to traditional bonds, but they come with clearly defined environmental mandatesThe capital raised through these credit instruments must be exclusively allocated to green projects onlyAreas that are typically funded include:

• Large renewable energy installations, such as solar and wind farms.
• Modernization of buildings and industrial processes at energy saving.
• Electrification and emission reduction public transport.
• Sustainable water and waste management systems.
• Improvement resilience of urban infrastructure to climate change.
• Investment strategies focused on reducing air, water and soil pollution.

Investor attractiveness and the current market

This type of targeted financing is particularly appealing to investors who prioritize environmental, social and governance (ESG) criteria. It will attract domestic and global interest and capital for low-carbon projects. According to the report Reuters two Indian state-owned companies, NHPC and NTPC Green Energy, are trying to obtain approximately 45 billion Indian rupees (approximately 512.6 million USD). The funds are to be raised through short-term bond issues. Hydropower company NHPC plans to issue two-three-year bonds worth around Rs 20 billion. NTPC Green Energy, a subsidiary of NTPC, is making its debut in the bond market with an aim to raise Rs 20-25 billion through a five-year bond and may also consider a 10-year bond depending on investor interest. Both the organisations are targeting short-term bonds due to the current low rates and favourable yield spreads. NHPC had already raised Rs 19.45 billion through long-term bonds with maturities of 6-15 years in May. Short-term bond yields are expected to come down further after the RBI's monetary policy decision, which could boost demand for bonds.

Challenges in issuing green bonds

The green bond market also faces challenges. In June 2025, the Reserve Bank of India (RBI) cancelled the auction of 30-year sovereign green bonds worth Rs 5,000 crore, despite receiving bids exceeding Rs 10,943 crore. The reason was that yield expectations exceeded RBI's comfort level, affected by factors such as a weakening rupee and rising oil prices. This was the second cancellation in 2025. These cancellations are a clear sign of market volatility and a significant mismatch between the expected RBI "greenium" and investors' actual aspirations for returnsDespite these difficulties, however, municipal green bonds continue to offer lucrative underwriting opportunities for local green infrastructure and development projects.

The future of green bonds in the country

The country's green bond market is set to stable growth, supported by evolving regulations, growing investor interest and the diversification of sustainable projects. Efforts are focused on expanding scope beyond energy into areas such as sustainable agriculture, affordable housing and urban development. Strengthening transparency and credibility in green bond frameworks aims to build investor confidence and support long-term climate and sustainability goals. JRi

Disclaimer: This article is for informational purposes only and should not be considered investment advice. Readers are advised to seek advice from certified financial advisors and conduct independent research before investing in green bonds.