India’s sovereign green bonds have hardly received any good premiums from private investors, which is severely impacting raising finances for funding green transition, the Economic Survey said on Monday.
“Despite securing a good rating on its green bond framework, Indian sovereign green bonds have hardly received any ‘greenium’ (Green Premium) from private investors. It is more a ‘wall of capital’ than a ‘flood of capital’ that is waiting to fund energy transition in Emerging Markets and Developing Economies (EMDEs), the Survey for FY24, which was placed in Parliament on Monday, pointed out.
The ‘greenium’, or green premium, refers to pricing benefits based on the logic that investors are willing to pay extra or accept lower yields in exchange for sustainable impact.
Funds mobilisation
India released the Framework for Sovereign Green Bonds in 2022 enabling the mobilisation of funds from diversified investors for green projects, deepening the bond market. The framework has been rated as ‘Medium Green’ with a ‘Good’ governance score by CICERO, a Norway-based Second Party Opinion provider, highlighting India’s credibility and readiness to issue sovereign green bonds.
India undertook the issue of sovereign green bonds amounting to ₹16,000 crore in January-February 2023, followed by a second issue of ₹20,000 crore in October-December 2023.
“It just isn’t mobile. All of these together have severely hampered the flow of finance for green transition projects,” the Survey added.
Even though the Survey flagged the issue of lower premiums on green bonds, the Chief Economic Advisor (CEA) in a presser said that low premiums on green bonds is not just an India issue, but a global one.
Financing green energy transition
Lack of access to adequate and affordable financial resources remains a significant constraint for developing countries in implementing their climate commitments, the Survey said, adding that finance flows to developing countries from developed nations have been very meagre.
“Currently, most of the international finance available for developing countries is in the form of loans rather than grants,” it added.
Available, accessible and affordable financial resources are essential to meet the needs of developing countries. UNFCCC and its Paris Agreement mandate that developed countries provide the resources and take the lead in mobilising finance through various sources.
“However, much of the climate action by developing countries has been done through domestic resources, and the emphasis of the developed countries has mainly been on private finance taking the lead in financing climate action,” it pointed out.
Given the scale of financial requirements, the ability of private capital to meet the needs even partially remains debatable. Further, the cost of such capital would have implications on the macroeconomic stability of the developing countries, it added.
The preliminary estimates of the overall resource requirement, as stated in India’s nationally defined contributions (NDCs) is $2.5 trillion for 2015-2030.
“While India has relied upon its resources so far, it is vital that resources from developed countries and mobilised by the latter flow to the developing countries in line with the objectives of the UNFCCC and its Paris Agreement,” the Survey emphasised.
The global narrative on the issue of climate change, describing it as a climate emergency, shifts focus from the equally, if not more, critical developmental problems and can cause panic, it cautioned.