Benefits of Green Bonds

06 October 2025

What Are Green Bonds?

Green bonds have emerged as a significant sustainable financing instrument globally and in India. They enable investors to support projects with positive environmental impacts, such as renewable energy, clean transportation, and energy efficiency. The rising importance of environmental sustainability has led both governments and companies to increasingly explore green bonds as a way to fund eco-friendly initiatives.

This guide explains green bonds, their types, examples, working mechanism, and their role in India’s financial ecosystem. It is intended for educational purposes to help investors understand this emerging asset class.

A green bond is a fixed-income instrument issued to raise capital for projects that contribute to environmental or climate-related benefits. Similar to traditional bonds, they pay periodic interest to investors and return the principal at maturity. The key difference lies in the use of funds, which is strictly for green projects.

Global Perspective: The first green bond was issued in 2007 by the European Investment Bank.

India: The first green bond in India was issued by Yes Bank in 2015, marking the start of sustainable finance in the country.

Types of Green Bonds

Green bonds can be structured differently depending on how funds are allocated and repaid:

  • Use of Proceeds Green Bonds: Funds are earmarked exclusively for environmental projects.

  • Green Revenue Bonds: Repayment is linked to revenue generated by green projects.

  • Green Project Bonds: Issued specifically to finance a single green project.

  • Green Securitized Bonds: Backed by green assets such as renewable energy installations.

These variations provide flexibility while ensuring funds are directed toward environmentally responsible projects.

Green Bonds in India

The adoption of green bonds in India has grown steadily:

  • First Issuance: Yes Bank issued India’s first green bond in 2015.

  • Government Initiatives: SEBI has issued guidelines for green bond issuance to maintain transparency.

  • Corporate Participation: Companies such as NTPC and Adani Green Energy have used green bonds to fund solar and wind energy projects.

This aligns with India’s renewable energy targets and environmental goals.

Examples of Green Bonds

  • Yes Bank (2015): India’s first green bond of ₹1,000 crore for renewable energy projects.

  • NTPC (2016): $300 million green masala bonds listed on the London Stock Exchange.

  • IREDA: Raised funds through green bonds for clean energy projects.

  • World Bank Green Bonds: Funds projects globally for climate resilience and energy efficiency.

These examples illustrate the adoption of green bonds by both government-linked and corporate issuers.

How Do Green Bonds Work?

Green bonds function like traditional bonds, with additional environmental reporting:

  • Issuance: Government, corporations, or financial institutions issue green bonds to raise capital.

  • Investment: Investors purchase these bonds, providing capital to the issuer.

  • Utilization of Funds: Proceeds are allocated to pre-defined green projects.

  • Returns: Investors receive interest periodically and the principal at maturity.

  • Environmental Reporting: Issuers provide transparency on fund allocation and project impact.

Benefits of Green Bonds in India

  • Promotes Sustainable Development: Supports renewable energy, clean transportation, and sustainable agriculture.

  • Attracts Responsible Investors: Appeals to investors interested in aligning portfolios with environmental impact.

  • Government Support: SEBI guidelines enhance credibility and adoption.

  • Portfolio Diversification: Provides access to a new asset class beyond traditional bonds.

  • Global Recognition: Positions India in the global sustainable finance market.

Challenges of Green Bonds

  • Verification and Transparency: Ensuring funds are used strictly for green projects requires monitoring.

  • Market Awareness: Many investors are still unfamiliar with green bonds and their potential.

  • Liquidity Concerns: Compared to conventional bonds, green bonds may have lower secondary market liquidity.

Are Green Bonds a Good Investment?

Green bonds offer stable returns similar to traditional bonds while supporting environmental initiatives. They may not always provide higher yields but can appeal to risk-conscious investors who want to contribute to sustainable development alongside earning interest.

FAQs on Green Bonds

Q1. What are green bonds in simple terms?

Green bonds are bonds issued to raise funds for environmentally friendly projects such as renewable energy or clean transportation.

Q2. Who issued the first green bond in India?

Yes Bank issued India’s first green bond in 2015.

Q3. How do green bonds work?

They function like traditional bonds, with funds allocated specifically to green projects, accompanied by transparency reports.

Q4. Are green bonds a good investment in India?

Green bonds can be suitable for investors seeking stable returns while contributing to environmental sustainability.

Q5. What are some examples of green bonds in India?

Yes Bank, NTPC, and IREDA have issued green bonds for renewable energy projects.

Disclaimer

This blog is intended solely for educational and informational purposes. The bonds and securities mentioned herein are illustrative examples and should not be construed as investment advice or personal recommendations. BondScanner, as a SEBI-registered Online Bond Platform Provider (OBPP), does not provide personalized investment advice through this content.

Readers are advised to independently evaluate investment options and seek professional guidance before making financial decisions. Investments in bonds and other securities are subject to market risks, including the possible loss of principal. Please read all offer documents and risk disclosures carefully before investing.

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