Topic: A Study of Green Debt Securities.

Submitted By
Ashutosh kumar
Roll no. 131122
5 Year , 9 Semester, B.A.LL.B(Hons.)
th th

Submitted to
Mr. Ashok Kumar Sharma
Faculty of INVESTMENT LAW.

Chanakya national Law University, Patna

2019

1
 Table of Contents

ACKNOWLEDGEMENT--------------------------------------------------------3

RESEARCH METHODOLOGY------------------------------------------------4

INTRODUCTION-----------------------------------------------------------------5

GREEN BONDS IN INDIA------------------------------------------------------7

GREEN BONDS GUIDELINE AND PRINCIPLES--------------------------9

BENEFITS OF ISSUING GREEN BOND------------------------------------12

CONCLUSION--------------------------------------------------------------------14

BIBLIOGRAPHY-----------------------------------------------------------------15

2
 ACKNOWLEDGEMENT

It is my greatest pleasure to be able to present this project of Investment law. I found it very
interesting to work on this project. I would like to thank my teacher, Mr. Ashok Kumar Sharma
for providing me with such an interesting project topic and for her constant support and guidance.

I would also like to thank my librarian for helping me in gathering data for the project. Last, but
not the least, I would heartily thank my family and friends for their unwavering support without
which this work would not have been possible.

I hope that the readers will appreciate this project work.

Ashutosh Kumar

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 OBJECTIVE OF THE STUDY
The main objective behind this project is:

 To know the concept of Green Debt Securities in India.

 To know the Policies and Regulations of Green Debt Securities in India.

HYPOTHESIS
For the project, the researcher presumes that:
 The Green bonds can help in enhancing an issuer's reputation, as this is an effective way
for an issuer to demonstrate its green credentials.
 The Government support in the form of policies and regulatory support is vital to bring the
green bonds market in India to scale.

Research Methodology
The researcher aims to research with ‘Doctrinal Method’ by referring to books, journals, articles,
Bare acts, documentary, cases prevalent and the online sources as Research Paper.

Sources of data
For doing the research work various sources has been used. Researcher in the research work has
relied upon the sources like many books of Investment Law, Articles, and Journals. The online
materials have been remained as a trustworthy and helpful source for the research.

Scopes and limitations

Though the researcher has tried his level best to not to left any stone unturned in doing his research
work to highlight the various aspects relating to the topic, but the topic being so vast and dynamic
field of law and whose horizon and ambit cannot be confined and narrowed down, the research
work has sought with some of the unavoidable limitations.

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 INTRODUCTION
India’s Intended Nationally Determined Contribution (INDC) document puts forth the stated
targets for India's contribution towards climate improvement and following a low carbon path to
progress. The document also impresses upon the need of financing needs for achieving the stated
goals, where a preliminary estimate suggests that at least USD 2.5 trillion (at 2014-15 prices) will
be required for meeting India's climate change actions between now and 2030. In this regard the
document talks about the introduction of Tax Free Infrastructure Bonds of INR 50 billion (USD
794 million) for funding of renewable energy projects during the year 2015-16.

A green bond is like any other bond where a debt instrument is issued by an issuer for raising funds
from investors. However what differentiates a Green bond from other bonds is that the proceeds
of a Green Bond offering are ‘ear-marked’ for use towards financing ‘green’ projects.

SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter “ILDS Regulations”)
govern public issue of debt securities and listing of debt securities issued through public issue or
on private placement basis, on a recognized stock exchange.1

Thus, an issuance of Green Bonds in India, shall be governed under ILDS Regulations, requiring
issuer to make disclosures as required under ILDS Regulations. However, given the nature of such
bonds there is a need for defining what all constitutes under Green Bonds and the specific
disclosure requirements with regards to management of proceeds, reporting requirements etc.2

Definition of Green Debt Securities: Project(s) and/or asset(s) falling under any of the following
broad categories

 Renewable and sustainable energy including wind, solar, bioenergy, other sources of
energy which use clean technology etc.
 Clean transportation including mass/public transportation etc.
 Sustainable water management including clean and/or drinking water, water recycling etc
 Climate change adaptation
 Energy efficiency including efficient and green buildings etc.

1
https://www.sebi.gov.in/sebi_data/meetingfiles/1453349548574-a.pdf
2
https://www.cbd.int/financial/greenbonds/india-sebi2017.pdf

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  Sustainable waste management including recycling, waste to energy, efficient disposal of
wastage etc.
 Sustainable land use including sustainable forestry and agriculture, afforestation etc.
 Biodiversity conservation

Green bonds are debt instruments used to finance green projects that deliver environmental
benefits. A green bond is differentiated from a regular bond by its commitment to use the funds
raised to finance or re-finance “green” projects, assets or business activities. Green bonds can be
issued by either public or private actors up front to raise capital for projects or for re-financing
purposes, freeing up capital and leading to increased lending.3

In line with mainstream bonds, green bonds involve the issuing entity guaranteeing to repay the
amount borrowed over a certain period of time, and remunerating creditors through a coupon with
a fixed or variable rate of return. They can be structured as asset-backed securities tied to specific
green infrastructure projects but to date have most commonly been issued in the form of “use-of
proceeds” bonds that raise capital to be allocated across a portfolio of green projects. The
momentum of continued issuance and market demand has led to growing consensus on what
constitutes a green bond and progress has been made on standards and criteria for what constitutes
a green project or activity.

Green bond project definitions and requirements for disclosure of the use of proceeds are the basis
for developing a credible green bond market by avoiding “green washing”. Globally, the most
widely accepted standards are the Green Bond Principles, a set of voluntary guidelines elaborated
by key market participants under the coordination of ICMA, and the Climate Bonds Standard,
which also includes sector specific criteria, developed by scientific experts under the stewardship
of the Climate Bonds Initiative (CBI).4 The GBP, updated most recently in June 2016, have
achieved broad market acceptance as well as growing recognition by policy makers and regulators.
As of June 2016, over 117 Green Bond issuers, underwriters and investors have become members
of the GBP and in excess of 73 organisations are observers.

3
https://www.investopedia.com/terms/g/green-bond.asp
4
Moody’s(2016).https://www.moodys.com/research/Moodys-Global-green-bond-issuance-in-2017-eclipses-2016-record
PR_375206

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 GREEN BONDS IN INDIA

According to an Input Paper prepared by Organisation for Economic Co-operation and

Development (OECD)5titled Green Bonds: Country Experiences, Barriers and Options, India
entered the green bond market in the year 2015, with a total of USD 1.1 billion of green bonds
issued from a handful of pioneer issuers. The first green bond issue in India was by Yes Bank
Limited in 2015 for INR 1000 crores which was oversubscribed. This was closely followed by the
green bond issue by CLP India for INR 600 crores for its wind portfolio, India's first certified
climate bond issue by Hero Future Energies for INR 300 crores and the first internationally
certified green bond issue by Axis Bank Limited for raising USD 500 million which was listed on
the London Stock Exchange. The Asian Development Bank (ADB) in 2016 has issued green bonds
to support climate change mitigation and renewable energy in India. It has already raised three
billion Indian Rupees (£35.7m) from issuing the bonds, which will be channeled into the ReNew
Clean Energy Project, a wind and solar power project across six Indian states.

India is one of popular markets when it comes to issuance of Green Bonds. It featured in the 7th
position in terms of issuances in 2016 with issuance of USD 2.7 billion, behind United States,
France, China, Germany, Netherlands and Sweden.

India entered the green bond market in 2015 with the YES Bank issuing the first green bond for
financing the renewable and clean energy projects particularly, for wind and solar. Gradually, the
green bond market has expanded to several public sector undertakings, state-owned commercial
banks, state-owned financial institutions, corporates, and the banking sector. The Climate
Transparency’s Brown to Green Report 2017, drew a comparison across the G20 countries in terms
of their green bond issuance as a share of the country’s overall debt market. According to them,
among the G20 countries, India ranks fifth. This highlights the existing scale and future scope in
the country to develop and grow green bonds as an instrument to accelerate green market
penetration.

India’s Intended Nationally Determined Contribution (INDC) document puts forth the stated
targets for India's contribution towards climate improvement and following a low carbon path to

5
OECD (2015c), Policy Guidance for Investment in Clean Energy Infrastructure: Expanding Access to Clean Energy for Green
Growth and Development, OECD Publishing, Paris

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progress. The document also impresses upon the need of financing needs for achieving the stated
goals, where a preliminary estimate suggests that at least USD 2.5 trillion (at 2014-15 prices) will
be required for meeting India's climate change actions between now and 2030. In this regard the
document talks about the introduction of Tax Free Infrastructure Bonds of INR 50 billion (USD
794 million) for funding of renewable energy projects during the year 2015-16.

A green bond is like any other bond where a debt instrument is issued by an issuer for raising funds
from investors. However what differentiates a Green bond from other bonds is that the proceeds
of a Green Bond offering are ‘ear-marked’ for use towards financing ‘green’ projects.

SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter “ILDS Regulations”)
govern public issue of debt securities and listing of debt securities issued through public issue or
on private placement basis, on a recognized stock exchange.6

Thus, an issuance of Green Bonds in India, shall be governed under ILDS Regulations, requiring
issuer to make disclosures as required under ILDS Regulations. However, given the nature of such
bonds there is a need for defining what all constitutes under Green Bonds and the specific
disclosure requirements with regards to management of proceeds, reporting requirements etc.7

6
https://www.sebi.gov.in/sebi_data/meetingfiles/1453349548574-a.pdf
7
https://www.cbd.int/financial/greenbonds/india-sebi2017.pdf

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 Green Bond guidelines and principles
Background
The green bond market is underpinned by voluntary guidelines and standards, as well as more
recently by rules and regulations in some jurisdictions such as China, India and France. At the
core, there are the Green Bond Principles (GBP), a set of voluntary guidelines elaborated by key
market participants under coordination of the International Capital Markets Association (ICMA)
acting as secretariat. This is complemented by the work of the Climate Bonds Initiative (CBI), as
well as by the work of multilateral and other development finance and government institutions. A
number of private and academic organisations provide assurance on alignment with the GBP
and/or on Climate Bonds Certification, as well as on the eligibility of environmental projects.
Some are also developing different types of green ratings8.

Green Bond Principles

The GBP launched in January 2014 as voluntary process guidelines intended for broad use by the
market that recommend transparency and disclosure, and promote integrity in the development of
the green bond market.9 They are intended to provide the informational basis for the market to
increase capital allocation to environmentally beneficial purposes through a self-regulatory
framework. The GBP was updated in June of 2016.10

The GBP have achieved broad market acceptance and legitimacy, as well as growing official
recognition by policy makers and regulators. As of August 2016, green bond issuers, underwriters
and investors have become members of the GBP and in excess of 75 organisations are observers.
By extension this community is also referred to as the GBP and brings together the majority of
participants and stakeholders in Green Bond market. It is coordinated by an Executive Committee
of 24 members constituting a representative group of key issuers, investors and intermediaries that
oversee the annual update of the GBP.11 ICMA acts as Secretary to the GBP advising on
governance and other matters, as well as providing organizational support. The importance of the
GBP’s membership, as well as its dedicated governance structure and organization, explain its

8
ICMA (2017), The Green Bond Principles; for the list of Green Project categories,
9
“Green Bond Principles,” ICMA (International Capital Market Association), accessed March 2015,
10
Government Pension Fund Global (2015).
11
OECD (2017), Mobilising bond markets for a low-carbon transition.

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market legitimacy and growing recognition by the official sector. The GBP define green bonds as
any type of bond instruments where the proceeds will be exclusively applied to finance or re-
finance in part or in full new and/or existing eligible green projects and which follow the 4 green
bond Principles which can be summarized as follows:

1. Use of Proceeds (which should be appropriately described in the legal documentation for the
security and include designated green project categories)

2. Process for Project Evaluation and Selection (outlining the issuer’s decision-making process in
determining the eligibility of green projects)

3. Management of Proceeds (with the net proceeds of Green Bonds being credited to a subaccount,
moved to a sub-portfolio or otherwise tracked by the issuer)

4. Reporting (on the use of proceeds and the temporary investment of unallocated proceeds)

The GBP also recommend that issuers use external reviewers to confirm their alignment with the
key features of Green Bonds. External review providers include specialized consultancies,
accountancy firms, ESG analysts and academic organisations. The GBP furthermore recognizes
the role of certification.12

The Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency
and disclosure and promote integrity in the development of the Green Bond market by clarifying
the approach for issuance of a Green Bond. The GBP are intended for broad use by the market:
they provide issuers with guidance on the key components involved in launching a credible Green
Bond; they aid investors by promoting availability of information necessary to evaluate the
environmental impact of their Green Bond investments; and they assist underwriters by moving
the market towards expected disclosures that will facilitate transactions.13

The GBP recommend a clear process and disclosure for issuers, which investors, banks,
underwriters, placement agents and others may use to understand the characteristics of any given
Green Bond. The GBP emphasise the required transparency, accuracy and integrity of information
that will be disclosed and reported by issuers to stakeholders.

12
Ceres, “A Statement of Investor Expectations for the Green Bond Market,” Investor Network on Climate Risk,
13 “World Bank Green Bonds—Impact,” World Bank Treasury.

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Types of Green Bonds

There are currently four types of Green Bonds (additional types may emerge as the market
develops and these will be incorporated in annual GBP updates):

 Standard Green Use of Proceeds Bond: a standard recourse-to-the-issuer debt obligation

aligned with the GBP.
 Green Revenue Bond: a non-recourse-to-the-issuer debt obligation aligned with the GBP
in which the credit exposure in the bond is to the pledged cash flows of the revenue streams,
fees, taxes etc., and whose use of proceeds go to related or unrelated Green Project(s).
 Green Project Bond: a project bond for a single or multiple Green Project(s) for which the
investor has direct exposure to the risk of the project(s) with or without potential recourse
to the issuer, and that is aligned with the GBP.
 Green Securitised Bond: a bond collateralised by one or more specific Green Project(s),
including but not limited to covered bonds, ABS, MBS, and other structures; and aligned
with the GBP. The first source of repayment is generally the cash flows of the assets

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 Benefits of issuing Green Bond

The benefits for issuers include investor diversification, closer engagement with investors, raising
awareness for an issuer’s activities, and helping to build a market that helps mobilize private sector
financing for climate-focused and environmentally friendly activities.

The market price of green bonds is determined like any other bond in relation to market conditions
at the time of issuance (often relative to reference bond rates).

To compare a green bond with a regular bond would require the issuer to issue them almost
simultaneously and with almost identical terms— including currency, structure, yield, and
maturity. This is rare. It is generally accepted that green bonds are priced very close to regular
bonds; that is, investors are not willing to give up return or pay extra for the green aspect of the
bond and related reporting. However, observers of this nascent market point to growing demand
and preference for green bonds by a growing number of mainstream investors. Anecdotally,
investors in green bonds have been able to sell at higher prices than conventional bonds because
of the rarity of green bonds. Depending on demand and supply trends in specific markets,
differential pricing for green bonds relative to other bonds could emerge in the future.

The funds raised by the first green bonds could have been raised with regular bonds. Green bonds,
however, allow issuers to reach new investors, making such issuers less dependent on specific
markets. Green bonds also help raise awareness about issuers’ environmental programs. Since
most green bonds in the market today carry similar financial characteristics as regular bonds from
the same issuer (that is, they are backed by the full credit of the issuer), one could argue that they
offer limited benefit to issuers. However, reaching different investor groups is valuable to expand
funding sources. In particular, green bonds have attracted investors from the growing segment
focused on sustainable and responsible investing (SRI) and investors that incorporate ESG
(environmental, social, and governance) criteria as part of their investment analysis. In addition to
reaching different types of investors, green bonds have proven to be an effective tool to raise
awareness and open intense dialogue with investors about projects that help address climate change
and other environmental challenges.

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There is an urgent need to transition to low-carbon and climate-resilient development and growth.
Effective policies and more financing will be needed to achieve these goals. Green bonds could
play a bigger role.
Globally, a transition to low-carbon, climate-resilient growth is needed to avert worsening
consequences of climate change and natural resource scarcity. Public policy plays a key role in
signaling the urgency of moving toward such a long-term goal. This includes avoiding price
distortions (for example, reducing subsidies on fossil fuels) and applying policies that manage
natural resources to reduce emissions, manage scarcity, and mitigate climate risk.
Experts have estimated the amount of financing that is needed to support this transition. The
estimates vary, but all agree that the financing gap cannot be covered by public sources alone. 14
Private financing already accounts for about 60 percent of the estimated flows supporting climate
action.15
Most green bonds issued so far are part of the overall funding program of issuers. For example,
MDBs have provided about US$42 billion in loans for low-carbon and climate-resilient projects.
To the extent that a portion of the MDB funding for these loans was raised from capital markets
in the form of green bonds, MDBs are already part of the existing climate funding sources.

The market for green bonds is still at an early stage, but as the range of investors is growing, so
could the variety of bonds being offered. This includes, for example, bonds of different issuers that
carry higher risk but yield higher returns, bonds in currencies of more countries, and bonds with
returns linked to revenues of specific projects. The larger this variety becomes, the higher the
potential for green bonds to help raise more private capital to support environmental and climate
friendly investments. Of course, green bonds are only one instrument in the menu of financing
innovations that can be developed. Other instruments may be more suitable, particularly in
countries with less developed capital markets. The World Bank Group works to develop financing
structures that enhance the attractiveness of climate investments and, more broadly, to deepen local
financial market.

14
GCEC (Global Commission on the Economy and Climate), Better Growth, Better Climate: The New Climate Economy Report,
The Synthesis Report (Washington, DC: GCEC, 2014), http://newclimateeconomy.report. The New Climate Economy Report
estimates that that an average of US$6 trillion per year will be spent in infrastructure over the next 15 years, and that an additional
US$270 billion per year would be needed to make a transition to low-carbon economy.
15
CPI (Climate Policy Initiative), “The Global Landscape of Climate Finance 2014,” CPI Report, November 2014,
http://climatepolicyinitiative.org/wp-content/uploads/2014/11/The- Global-Landscape-of-Climate-Finance-2014.pdf.

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 CONCLUSION

India’s green bond market is still small. The Council on Energy, Environment and Water (CEEW)
estimates that around USD 1.62 billion of green bonds were issued in India in 2016. Compared to
the total issue of USD 81 billion that was issued globally, it’s a very small fraction.

India aims to generate 40% of electricity through renewable energy sources like wind and solar by
the year 2030, which would require substantial investment. Green bonds could support deployment
of renewable energy projects by providing broader access to domestic and foreign capital as well
as better financing terms, including lower interest rates with longer lending terms. SEBI’s
statement in the Concept Paper included an explicit mention that SEBI sees the green bond market
as a key tool to help raise the finance needed to meet the ambitious targets of India’s Intended
Nationally Determined Contribution (INDC) as established for COP21 - essentially India's climate
change action plan. Such a viewpoint from SEBI demonstrates the potential for other countries to
utilize the green bond market in order to meet INDCs. Green bonds are debt instruments used to
finance green projects that deliver environmental benefits. A green bond is differentiated from a
regular bond by its commitment to use the funds raised to finance or re-finance “green” projects,
assets or business activities. Green bonds can be issued by either public or private actors up front
to raise capital for projects or for re-financing purposes, freeing up capital and leading to increased
lending.

A green bond is like any other bond where a debt instrument is issued by an issuer for raising funds
from investors. However what differentiates a Green bond from other bonds is that the proceeds
of a Green Bond offering are ‘ear-marked’ for use towards financing ‘green’ projects.

SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter “ILDS Regulations”)
govern public issue of debt securities and listing of debt securities issued through public issue or
on private placement basis, on a recognized stock exchange.

Thus, an issuance of Green Bonds in India, shall be governed under ILDS Regulations, requiring
issuer to make disclosures as required under ILDS Regulations. However, given the nature of such
bonds there is a need for defining what all constitutes under Green Bonds and the specific
disclosure requirements with regards to management of proceeds, reporting requirements etc.

14
 BIBLIOGRAPHY
BOOKS AND STATUTES;

 An Introduction to Bond Markets (Securities Institute) by Moorad Choudhry, Published

by John Wiley & Sons; 4th edition (10 September 2010) ISBN-10: 047068724X
 Capital Markets & Securities Laws by N.S. Zad, Published by Taxmann; 4th Edition June
2018 edition (2018) ISBN-10: 9387957470

 SEBI (Issue and Listing of Debt Securities) Regulations, 2008

 Securities and Exchange Board of India Act, 1992

WEBSITES;

 http://www.sebi.gov.in/sebi_data/attachdocs/1449143298693.pdf

 http://unepinquiry.org/wpcontent/uploads/2016/09/6_Green_Bonds_Country_Experience

s_Barriers_and_Options.pdf

 http://www.climatebonds.net/

 https://www.environmental-finance.com/ channels/green-bonds.html

 https://www.spratings.com/economic-research/ Climate-Change.html

 http://treasury.worldbank.org/cmd/htm/ WorldBankGreenBonds.html

 http://treasury.worldbank.org/cmd/pdf/ ImplementationGuidelines.pdf

 http://treasury.worldbank.org/cmd/WorldBank-Green-Bond-Symposium-Summary.pdf

15