What may hold back green bonds’ growth in India?

Various factors are seen to pose hurdles to the growth of green bonds critical for clean projects.

Whilst India’s green bonds are expected to continue growing, thanks to efforts to achieve a low-carbon economy, several factors are seen to pose challenges that could restrict this trend, according to the Institute of Energy Economics and Financial Analysis (IEEFA).

In a new briefing note, IEEFA outlines the primary challenges that could impede the expansion of green bonds, which are crucial for funding green projects.

“The absence of robust monitoring and reporting mechanisms exacerbates greenwashing, and addressing this is important to ensure that green bonds achieve their intended purpose of financing genuinely sustainable projects,” said Labanya Prakash Jena, consultant for sustainable finance at IEEFA, and one of the authors of the briefing note.

These challenges are even fuelled by varying definitions, verification, and reporting of green bonds across different jurisdictions.

Whilst there are frameworks such as the Green Bond Principles by the International Capital Market Association and the Climate Bonds Standard, adoption and interpretation may still vary across markets, co-author Vandana Vuppuluri, an alumna of the Indian Institute of Management, Rohtak, pointed out.

There is also the problem of the high cost of issuing green bonds, which has “created an uneven playing field, largely restricting green bond issuance to well-resourced corporates and sovereigns.”

“It is important to remember that the green bond market is relatively small compared to the broader bond market, limiting investment opportunities. Transparency is also an issue as obtaining clear, consistent post-issuance reports on the environmental impact of projects can deter investors,” said Jena.

Vuppuluri said that whilst green bonds are not a standalone solution for climate change, these are essential to financing a low-carbon transition.

“Ultimately, their success depends on the interplay between market mechanisms, regulatory frameworks, and stakeholder commitment to environmental goals,” the expert added.