Green Bond
A green bond is a fixed-income instrument in which the proceeds are exclusively used to finance or refinance eligible environmental or climate-related projects such as renewable energy, clean transportation, or sustainable water management.
The green bond market traces its origins to 2007–2008, when the European Investment Bank and the World Bank issued the first climate-labelled bonds. The concept gained rapid traction globally as institutional investors sought fixed-income instruments that aligned with environmental mandates. By the 2020s, annual global green bond issuance had grown to hundreds of billions of dollars, with India emerging as a notable participant.
In India, SEBI issued a framework for green bonds in January 2016, making it one of the earlier markets to provide formal regulatory guidance. The framework defined eligible green categories, required a separate ring-fenced account for proceeds, mandated annual utilisation reporting, and encouraged independent third-party review of the issuer's green bond framework. SEBI updated and strengthened these disclosures under the 2023 ESG-related securities framework.
The Indian government entered the green bond market when the Union Government issued Sovereign Green Bonds (SGrBs) in January 2023 — the first such issuance by the Indian sovereign. These bonds raised ₹8,000 crore in the initial tranche, with proceeds earmarked for expenditures in renewable energy, energy efficiency, and climate adaptation projects. The sovereign issuance was significant because it set a pricing benchmark for other Indian green bond issuers and signalled government commitment to sustainable finance.
Corporate issuers of green bonds in India have included Adani Green Energy, NTPC, ReNew Power, Indian Railway Finance Corporation, and several banks. The bonds are listed on NSE and BSE's dedicated green and social bond segments, and international institutional investors have been active buyers, attracted by the combination of Indian growth prospects and ESG alignment.
A key risk associated with green bonds is greenwashing — the possibility that proceeds are used for projects that are not genuinely environmentally beneficial, or that the environmental claims are exaggerated. To mitigate this, issuers increasingly obtain second-party opinions from organisations like the Climate Bonds Initiative or CARE Ratings' green bond team. For fixed-income investors with ESG mandates, green bonds offer a way to earn market-rate returns while directing capital toward measurable environmental outcomes.