This article was produced by IFR and originally published on www.IFRe.com.
India’s market regulator and central bank have made recommendations to increase green finance and manage climate risk to help the country meet its net-zero carbon emissions target by 2070.
- The Securities and Exchange Board of India (SEBI) aims to widen the use of green bonds and step up disclosure requirements.
- The government and the Reserve Bank of India are working on a framework for the issuance of the bonds.
- The market regulator is aiming to increase the issuance of green debt securities to support pollution control and the circular economy.
The Securities and Exchange Board of India aims to widen the use of green bonds and step up disclosure requirements, introduce blue bonds, and reduce the cost of compliance for issuers that sell green bonds, while avoiding greenwashing, according to a discussion paper on 5 August.
Addressing climate-related risk
The regulator is seeking comment on India’s potential to sell blue bonds given its 7,500km coastline and 14,500 km of inland waterways, whose combined output makes up 4.1 percent of the economy.
The blue bonds can be used for oceanic resource mining, sustainable fishing, reducing coral degradation, geo-engineering and eco-tourism.
The Reserve Bank of India said in its discussion paper on 27 July that financial institutions need to have a mechanism at board level to identify, manage and address climate-related and environmental risk.
The recommendations come after India pledged at the COP26 climate conference in November to meet half of its energy needs through renewable sources and construct 500GW of renewable energy capacity by 2030.
Finance minister Nirmala Sitharaman announced a plan on 1 February to issue the first sovereign green rupee bond in the current fiscal year ending in March to fund green infrastructure. A finance ministry statement on 1 April said the government and the Reserve Bank of India are working on a framework for the issuance of the bonds.
Under SEBI’s current framework, only 14 issuers have sold green bonds in the rupee market, raising a combined Rs45.39bn (US$500m), because of a lack of demand among domestic investors as the pricing of such paper is more favourable overseas.
Issuers raised a record US$7bn of green and ESG-linked bonds in the offshore market in 2021.
SEBI’s Corporate Bonds and Securitization Advisory Committee proposed changes in the consultation paper to align the market regulator’s green bond guidelines with ICMA’s Green Bond Principles.
How could green finance support environmental aims?
The market regulator is aiming to increase the issuance of green debt securities to support pollution control and the circular economy, such as the adoption of products and technology to recycle and reuse materials.
It also aims to enhance disclosure requirements on identifying assets and projects where the funds will be used for refinancing and highlighting any social and environmental risks.
External agencies or third-party auditors that certify green bonds should disclose their reviews on the exchanges where the bonds are listed, it said.
The Reserve Bank of India said financial institutions can integrate climate-related risk indicators in their risk appetite framework and due diligence processes.
They can assign a climate risk rating for customers with material exposure, with high-risk ratings to be periodically monitored. They can also develop a heat map to identify activities exposed to climate risk and take measures to mitigate or refrain from such risks.
The banks can voluntarily set incremental targets over the short, medium, and longer-term to support green finance, it said.
In our recent Net Zero Conversations series, Andy Bainbridge, Private Infrastructure Development group chair, discusses the roadmap towards net zero, and the critical role that infrastructure finance has to play in delivering climate action.