Considering the negligible pricing differential with conventional bonds, here’s how we can get more issuers out of India to consider Green Bonds.
The change starts from the beginning – we need a mind shift. We need more Corporate Boards to consider Environmental, Social and Governance (ESG) policies at the heart of their operations and financial decision-making.
Green Bonds will act as a catalyst for change towards adopting more sustainable practices – simply because its compliance auditing will require proof of action towards pre-set sustainability goals.
However, interest cost savings, a key deliverable for the CFO, should not be the sole criteria for issuance of such instruments. The long-term value these instruments create in changing the ESG policies, and compliance of firms is crucial, in excess of the negligible yield differential (vis-a-vis conventional bonds). Besides, of course, further broad basing the investor pool.
Taking the leap of faith: Promoting sustainable financing in India
In India, the Reserve Bank of India (RBI) and the Government of India (GoI) are taking measures to encourage sustainable financing.
However, a pick-up in momentum happens when some incentives are offered, at least for a defined timeframe.
The 2 accelerators that could infuse more energy in this sector (and have no fiscal cost for the Government) are:
1.Priority Sector Loan (PSL) benefit for all categories of sustainable financing (the RBI may consider defining the qualifying metrics for such assets)
2.Considering the country's requirement to build substantial infrastructure assets. It would add merit to build in the Green Principles from the outset and use the Green Loan/Green Bond Financing criteria to approach financial closure. We need some of the large multi-lateral financial institutions and international credit guarantee providers to come together and offer long term credit wraps thereby encouraging commercial banks to look at financing these projects.
Shifting focus: Finding the phenomena that has the power to change the industry in next 10, 20 or 30 years