A STUDY ON GREEN INVESTMENT

ABSTRACT

In present times of technological progress the worldwide economy is undermined from three
major challenges: environmental change, vitality limitations and money related emergency.
This is on account of financial improvement conveys alongside itself expenses to the countries
in the shape of environmental degradation. Green Investment or finance is the solution for
accomplishing contract between the economy and nature. Green Investment is considered as
the monetary help for green development, which decreases ozone depleting substance
discharges and air contamination emanations altogether. Green fund in horticulture, green
structures, green security and other green activities should increase for the monetary
improvement of the nation. In this paper an endeavour has been made to explore the existing
literature on the green investment or finance and future scope of green investment in India.

CHAPTER 1

INTRODUCTION

Investors and consumers around the world are increasingly driving momentum for positive
changes in our financial and economic systems. Large corporations face pressures to act
responsibly towards multiple sets of stakeholders, consumers demand increasing transparency
in business practices, and environmentally or socially minded innovators excite investors and
consumers alike about a more sustainable future. The scale of today’s social and environmental
challenges, too - with globally heightened uncertainty, widespread inequality, and significant
pressures on the environment-makes it evident that the responsibility to address them does not
fall on governments and philanthropists alone. Businesses and investors must embrace their
responsibility as engines of progress.

Indeed, there is evidence to show that investors and other financial professionals can lead
efforts to confront critical issues in local and global communities. Impact investing-investing
to generate positive social or environmental benefits alongside financial returns- has seen
tremendous growth and development over the past decade. Impact investors-whether they are

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commercial investors, fund managers, foundations, government agencies, or individuals-now
help finance a diverse set of solutions to many social and environmental issues, including
expanding access to critical basic services, supporting environmental conservation, and driving
the transition to renewable energy.

With growing evidence of success, investor interest has expanded rapidly, catalyzed in large
part by strategic and intentional field-building efforts. In 2007, impact investing pioneers
convened to determine how best to turn an exciting concept with early proof points into a robust
marketplace that could influence the global financial sector. In using the term ‘impact
investing,’ these pioneers intended a double meaning: both impact investing (making
investments intended to have a positive impact) and impact on investing (broadly affecting
investment practice by demonstrating that positive impact can be achieved). The Global Impact
Investing Network (GIIN), proud to have taken part in both these early conversations and
efforts, today continues to support investors in their quest to collectively achieve large-scale,
lasting improvements on a wide range of social and environmental problems.

In the 21 century, green financing has become indispensable not only in business, but also in
environmental science. All the nations, developed and developing nations, should make
endeavour for green financing and it is assessed that worldwide green financing in green
foundation will reach to $40 trillion in the vicinity of 2012 and 2030. Green finance is the
principle of green credit. It refers to a series of administrative means requiring that commercial
banks and other financial institutions carry on researches and developments to produce
pollution treatment facilities, be engaged in the ecological protection and restoration.

It additionally creates and use new vitality assets centre around the monetary generation, green
merchandise generation, and environmental rural generation, give credits to help applicable
undertakings and establishments and actualize concessionary low financing costs, however
limit new venture speculations of contaminating endeavours went with some culpable loan fees
(Xu, 2013).

During the past several years, market participants, regulators and policy makers have
increasingly focused their attention on issues concerning sustainable finance in its many forms.
These issues are particularly relevant for growth and emerging markets as they seek to develop
capital markets in their jurisdictions. Accordingly, in late 2017, IOSCO’s Growth and
Emerging Markets Committee (GEMC) initiated a project on Sustainable finance in
emerging markets and the role of securities regulators, to help emerging markets regulators

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better understand the issues and challenges that affect the development of sustainable finance
in capital markets. At the same time, investors and asset managers are also seeking to better
understand sustainability-related issues to ensure that capital is allocated according to
investors’ preferences. This report explores the issues and challenges that affect the
development of sustainable finance in capital markets, focusing on sustainable assets in
emerging markets and measures to facilitate market development in this area.
For the purposes of this report, the terms “sustainability” and “ESG” (Environmental, Social
and Governance) are used interchangeably. This report covers all three dimensions of ESG --
environmental (including climate change), social and governance -- focusing on the risks that
may have an impact on the financial system and the need for appropriate transparency and
disclosures in this area.
This increasingly intense focus on global sustainability issues has been accompanied by growth
in innovative sustainability-themed capital market products, such as green bonds, social-impact
bonds, renewable energy investments and sustainable funds. In addition, industry has given
growing importance to the disclosure of environmental, social and governance (ESG) risks,
and now these risks are incorporated into their investment analysis and decision making.
Based on the GEMC analysis and discussions with market participants during a GEMC
Dialogue on Sustainable Finance in Capital Markets (Dialogue) in London (July 2018), this
report sets forth a set of ten recommendations that member jurisdictions should consider when
issuing regulations or guidance regarding sustainable instruments and additional disclosure
requirements of ESG-specific risks. The recommendations fall into the following categories:

• Integration by issuers and regulated entities of ESG-specific issues in their overall risk
assessment and governance (Recommendation 1)

• Integration by the institutional investors of ESG-specific issues into their investment analysis,
strategies and overall governance (Recommendation 2)

• ESG-specific disclosures, reporting and data quality (Recommendation 3)

• Definition and taxonomy of sustainable instruments (Recommendation 4)

• Specific requirements regarding sustainable instruments (Recommendations 5 to 9)

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• Building capacity and expertise for ESG issues (Recommendation 10).

The GEMC encourages its members to consider implementation of this guidance in the context
of their legal and regulatory framework, given the significance of the associated risks and
opportunities. The GEMC work complements IOSCO’s efforts on sustainability such as the
IOSCO Sustainable Finance Network and IOSCO’s Statement on Disclosure of ESG Matters
by Issuers that was issued in January 2019.

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1.Concept of Green Investment

Definitions
There are hundreds of definitions for green investments in circulation and use, and it would be futile
to try to list and compare even a fraction of them. The purpose of this research is not to take a position
on a specific definition but rather to explore what is being commonly used in the market place,
whether there are commonalties and inconsistencies, and what lessons can be drawn from this
analysis.
Opinions differ not only on the definition of green‟ but also on what is meant by „investment‟. It is
therefore more productive to approach the question in two stages.

1.1 Defining ‘green’

Definitions of „green‟ can be explicit or implicit. Some are very broad and generic, others are
more technical and specific. Some are investment-driven, others come out of ecological or
ethical discussions. The „greenness‟ of assets can be postulated in absolute terms (a good or
technology is green or not green) or in relative terms (e.g. one company has lower greenhouse
gas emissions than another or is more energy-efficient). Green investments are invariably
conflated with climate change mitigation or adaptation, and the definitions focusing around
climate change are more uniform as they can to a certain extent be deduced from the science
about how to address climate change.

Definitions of green‟ can be based on ex ante arguments (e.g. any activity in sustainable energy,
energy efficiency or water management), or based on specific indicators. There are qualitative
and quantitative definitions, trying to measure different grades of „greenness‟. The latter
requires some sort of indicator or measure of greenness (e.g. greenhouse gas emissions, energy
efficiency, recycling and waste management, more points in a scoring system, etc.). A purpose
for the investment is key in order to pin green criteria down, as it allows for the navigation of
potential conflicts such as debates between aesthetics and wind energy.

1.2 Defining ‘investment’

A lot of actions are referred to as „investment‟, and this creates considerable confusion also
for the definition of green investments.

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In the broadest terms, an investment involves committing money or capital to an endeavour (a
business, project, real estate, etc.) with the expectation of obtaining an additional income or
profit. This can refer to the investment in underlying technology, projects or ventures but also
to financial products that invest in those. Green (or not so green) „investment‟ is being referred
to at all levels. This paper will focus on the latter – i.e. the financial products that institutional
investors use to invest in green projects and ventures. It must be stressed that financial products
cannot in themselves be green – greenness is derived from the uses to which they are being put
– underlying assets or activities.

Green investment pyramid

For institutional investors, there are basically two main levels of investment decision-making:
Strategic decisions taken by a board of directors or trustees, an investment committee
or CIO (e.g. on the type of ESG (Environmental Social and Governance), SRI
(Socially Responsible Investment), green investment policy).

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 • Implementation decisions taken by internal or external fund managers and „green‟
analysts (e.g. selection of assets, benchmarks, funds etc.).

Green assets vs. green overlays

Green, investments‟ refer to assets that are in some way defined as, green‟, e.g. a renewable
energy company, or a thematic green fund managing assets, or a carbon credit. However, green
investing‟ can also be undertaken in the form of an investment overlay, e.g. the integration of
climate change or ESG elements in the general investment approach or legal SRI compliance.

The terminology varies across the industry. A similar distinction has been made for ESG
investing using the terms (Urwin 2010): „integrated ESG‟ versus „targeted ESG‟. The former
refers to the use of ESG parameters in the general investment process, the latter to specific
mandates, products or managers.

There is no standard meaning of green investment. Green Investment is characterized as money

related assistance for green development, which decreases ozone depleting substances (GHGs)
and air poison discharges essentially. Green development demonstrates as development make
through the amicability between the economy and the earth. Fund in modern and financial
progressions with the diminishment of ozone harming substance emanations and other
ecological contaminations is green finance. Green development is the answer for three current
dangers to the worldwide economy; in particular, environmental change, vitality imperatives
and money related emergency. Green finance countenances a far reaching test to the customary
builds of budgetary law in each nation. In the 1990s natural contemplations have begun to
assume a greater part in the field of venture fund, affecting and moulding the hierarchical
schedules representing loaning choices. Green fund covers the change of the regions of natural
corruption, for example, air contamination, water contamination and shortage, encroachment
of streams, uncalled for transfer of mechanical, medicinal and family waste, deforestation, and
loss of open space and loss of biodiversity. It must be eco-accommodating and can add to
destitution easing. It is a key way to deal with fuse the monetary part in the change procedure
towards low-carbon and asset proficient economies, and with regards to adjustment to
environmental change. (Chaudhary and Bhattacharya 2006). "Green Investment is an
expansive term that can allude to money related ventures streaming into feasible advancement
undertakings and activities, natural items, and arrangements that empower the improvement of

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a more manageable economy. Green finance incorporates atmosphere fund, yet isn't restricted
to it. It likewise alludes to a more extensive scope of other natural goals, for instance, modern
contamination control, water sanitation, or biodiversity insurance. Moderation and adjustment
back is particularly identified with environmental change related exercises: alleviation,
monetary streams allude to interests in ventures and projects that add to lessening or
maintaining a strategic distance from ozone depleting substance outflows (GHGs) while
adjustment, money related streams allude to speculations that add to diminishing the weakness
of merchandise and people to the impacts of environmental change (Höhne et al. 2012)".

1.3 Historical Background of Green Finance

In 1992, The United Nations Environment Program Finance Initiative (UNEP FI) was launched
when UNEP joined with a group of commercial banks to promote consciousness of the
environmental program into the banking industry. The UNEP Finance initiative is a unique
corporation among UNEP and the economic region. It can be seen as the initial idea of Green
Finance. Later on, the initiative keeps engaging more financial institutions, including
investment and commercial banks, insurers and fund managers into close dialogues about
connecting environmental protection with sustainable economic development. It aims to
integrate environmental considerations into present financial services and practices. Currently,
around 190 financial institutions beginning, greater than 40 nations have signed to the UNEP
FI statement. Signatory institutions to the UNEP FI statement also have the chance to learn
from the network about the latest trends and practices on how to seize green opportunities for
growth as well as to shape sustainable finance agenda in their own development (UNEP FI,
2010, 2011).

1.4 The Equator Principles

In 2003, the Equator Principles (EPs) were propelled and were at first received by some driving
worldwide banks, for example, Citigroup Inc., The Royal Bank of Scotland, Westpac Banking
Corporation. It fills in as "an arrangement of wilful gauges for deciding, evaluating and
overseeing social and ecological hazard in venture financing" (Chaudhary and Bhattacharya
2006). The EPs is construct the execution gauges in light of social and natural manageability
of the International Financial Initiatives (IFC) and World Bank Group's Environmental, Health
and Safety general rules, and it gives a typical benchmark and system for venture back the
receiving substances, known as Equator Principles Financial Institutions (EPFIs), make their
own particular social and ecological strategies, methodology and models for their financing

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exercises, and guarantee not to offer credits to ventures where the borrowers don't consent to
the guidelines expressed in the EPs. In the meantime, EPFIs have obligations to guarantee the
borrowers know the substance of standards and to manage them on the best way to join
standards into arranged undertaking. They also require their clients to report the intention of
compliance with EPs’ standards if they are able to continue to seek financing for the project
afterwards. These principles can exist apply to all new projects with total capital costs equator
to or more than US$10 million wherever nationally or internationally. So far, there have been
nearly 70 monetary institutions on a global scale adopting and implementing the EPs. Different
from the UNEP FI report, the EPs explicitly provides sector standards that guide EPFIs to
manage independently and govern the policies by themselves. Nevertheless, the EPs only apply
to project finance and incidental advisory services, which is a comparatively narrow market
within the financial sector.

UN global compact

The UN Global Compact (UNGC) contains ten voluntary principles. The signatory banks
commit to avoid violating human rights, comply with labour standards, against corruption and
protect the environment. With respect to its focus sector, the UNGC (2011) respectively
addresses “businesses should bolster a prudent way to deal with ecological difficulties; attempt
activities to advance more prominent natural duty; and empower the improvement and
dispersion of earth well disposed advances".

Carbon disclosure project

The Carbon Disclosure project (CDP) is a non-profit association that impels corporations,
investors and other organizations to disclose the greenhouse gas (GHG) emissions of their
operations and assess their potential exposure to climate change related risks. It provides
participants with their climate impacts by applying climate change reporting system. For a
bank, the initiative can exactly calculate out about which part of GHG output is attributed to
its financing to a company. But, the CDP has no standards or exclusion criteria to delimitate
direct effects of bank forms it’s lending to companies who actually do not disclose their carbon
emission (CDP, 2011; Gelder, et al., 2010). As a whole, each of these initiatives has been signed
by a group of banks of worldwide, which significantly enhances banks’ sustainability and
strengthens their environmental risks management

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1.5 How green finance work

Green businesses and innovations are all at various levels of development, in this way,
requiring distinctive levels of subsidizing from various wellsprings of capital. There are by and
large three sources: residential open fund, worldwide open back and private part back.
Residential open back alludes to the immediate subsidizing by a legislature while worldwide
open fund alludes to subsidizing from universal associations and multilateral advancement
banks; private segment fund comprises of both local and global financing sources. Green
financing can be bundled in various routes through different speculation structures.

THE GREEN INVESTMENT INTERFACE

FINANCIAL INDUSTRY GREEN FINANCE

GREEN INVESTMENT INTERFACE

ENVIRONMENTAL
GREEN FINANCE
IMPROVEMENT

Green fund is a centre piece of low carbon green development since it interfaces the money
related industry, ecological change and monetary development (Figure 1): "One missing
connection amongst 'knowing' and 'doing' in the progress to green industry is 'green back'. All
green modern suggestions cost cash, and numerous green industry plans of action are as a
general rule untested or eccentric. Hence, conventional fund may think that its troublesome or
economically ugly to back these green modern recommendations." (Gao, 2009).

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 GREEN INVESTMENT PRODUCTS

RETAIL FINANCE CORPORATE/INVESTEMENT

FINANCE
• Green Mortgage G • Green Project Finance
• Green Home Equity Loan R • Green Securitization
E
• Green Commercial Building • Green Venture Capital &
E
Loan N Private Equity
• Green Car Loan, Credit Card • Technology Leasing
• Carbon Finance
I
N
ASSET MANAGEMENT V INSURANCE
• Fiscal Fund (Treasury Fund) E • Auto Insurance
S
• Eco Fund, Carbon Fund T • Carbon Insurance
• Cat bond (Natural disaster bond) M • Catastrophe Insurance
• Eco ETF E • Green Insurance
N
T

Three classifications for green fund are: framework of green, money related help for industry
or firms and budgetary markets. Green financing identified with Financial Industry Green
Finance Environmental Improvement Economic Growth Green Finance Interface
environmental change incorporates alleviation and adjustment ventures. Numerous private
financial specialists see the dangers of ecologically economical activities as not advocated by
the normal returns. Open financing components can tilt this adjust for apparent gainfulness; for
instance, by offering delicate advances or ensuring credits from private banks. Open
subsidizing can help goad private speculation. Joined Nations Economic and Social
Commission for Asia and the Pacific, Financing an Inclusive and Green Future: A Supportive
(Hee, 2010).

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1.6 The momentum for sustainable investment

Table 2: Sustainability Initiatives in the Financial Sector in India

Year Sustainability Initiatives

2007 RBI circular

2008 Launch of the S&P ESG India Index

SEBI's mandate for inclusion of business responsibility reports as part of the

2012 listed
entity's annual reports.
Launch of the S&P BSE CARBONEX

2013 Launch of the MSCI ESG India Index

2014 The Companies Act of 2013 mandates 2% of profits towards CSR

2015 Inclusion of renewable energy under Priority Sector Lending.

Mini Ratna status granted to IREDA.
IBA's guidelines on responsible banking.
Exim Bank of India issued a five-year US$500 million green bond.
YES Bank issued the first INR-denominated green bond.

2016 SEBI proposed new norms for issuance and listing of green bonds

A scope of wilful and authoritative activities have featured conspicuous strands of the
supportability basic in India, especially identified with monetary markets and the saving money
framework. The RBI issued its first round on managing an account and maintainable
improvement in 2007, empowering the appropriation of best practices and more prominent
straightforwardness.

All organizations, private restricted or open constrained, with a total assets of INR5 billion
(US$81.8 million), a turnover of INR10 billion (US$163.7 million) or a net 68 MUDRA:
Journal of Finance and Accounting, Volume 5, Issue 1, Jan-Jun 2018 benefit of INR50
million (US$0.8 million) need to spend no less than two for each penny of their normal net

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benefit of the prompt going before three monetary years on CSR exercises. Remarkably,
maintainability connected financing is an alternative accessible to organizations (FICCI, April,
2016).

1.7 Climate Change: The Greatest Market Failure

The Stern Review on the Economics of Climate Change states: “Climate change presents a
unique challenge for economics: it is the greatest example of market failure we have ever seen.”

Climatic changes, which can damage economies and livelihoods across the world, are caused
by GHG emissions that are considered a “global negative externality” as the emitters do not
pay for the costs they impose. A GHG negative externality is, therefore, a “market failure”
because market solutions are not socially optimal. For most products available in a well-
functioning market, the market system works as a kind of cost-benefit calculator. The revenue
received from the sale of the product reflects the economic benefits the products provided to
consumers, while the costs reflect the economic value of the resources used. In this case, the
profit criterion—that arm will only make products where the revenue exceeds the costs—also
performs a social cost-benefit function. However, when some of the costs are not included in
the market mechanisms—as happens with negative externalities—the profit calculus of the
market is no longer socially optimal.

1.8 Economic Policy Solutions for a Global Externality

There are standard economic tools for the prevention of negative externalities. These tools
involve imposing monetary burden, for instance in form of pollution taxes, cap-and-trade
systems, and, of course, regulation making it illegal to emit pollution above certain levels.
However, these standard solutions rely on governments having the ability to impose
regulations, taxes, or subsidies and the power to enforce them. These solutions become difficult
to apply to a global externality, because there is no global government. Instead, such
interventions require voluntary agreement between nations. The Kyoto Protocol represented a
step toward such coordinated action. However, not all countries signed the agreement, and the
Protocol only imposes limits on some of those countries that did. The Kyoto Protocol is set to
expire in 2012, but has not yet been replaced with any other global and binding agreement to
limit emissions. In the interim, the international community and national governments continue

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to work toward ways to cooperate in reducing GHG emissions. For example, the inter-national
community has committed to provide US$30 billion for the period 2010-2012through a Green
Climate Fund (GCF). Another initiative, the Climate Investment Fund

(CIF), has current spending capacity of US$6.5 billion. Such initiatives, collectively referred
to as green infrastructure finance, are growing in importance. However, it is clear that this level
of funding does not meet the level needed to finance required volume of flow-emission
investments. As discussed above, the estimated annual investment short-fall for climate
mitigation and adaptation actions by 2020 will reach at least US$150 billion.

Only a fraction of the needed investments can be provided by actual commitments from the
GCF and CIF.As a result, the international community has recognized that the majority of new
investment financing will need to come from private sources. Global financial markets can
easily supply the volumes of finance required, but will only do so if the investments area active.
However, many environmentally desirable investments do not over a commercially attractive
return.

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2. Green financial investment products and services

2.1 Green bond

A bond is a debt instrument with which an entity raises money from investors. The bond issuer
gets capital while the investors receive fixed income in the form of interest. When the bond
matures, the money is repaid.

A green bond is very similar. The only difference is that the issuer of a green bond publicly
states that capital is being raised to fund ‘green’ projects, which typically include those relating
to renewable energy, emission reductions and so on. There is no standard definition of green
bonds as of now.

Indian firms like Indian Renewable Energy Development Agency Ltd and Greenko have in the
past issued bonds that have been used for financing renewable energy, however, without the
tag of green bonds.

Green bonds are issued by multilateral agencies such as the World Bank, corporations,
government agencies and municipalities. Institutional investors and pension funds also have
appetite for such bonds. For instance, investment funds BlackRock and PIMCO have specific
mandates from their investors to invest only in bonds which fund green projects. The issuer
provides periodic reports about the project.

Green bonds also come with advantages of tax incentives such as tax savings, which make
them a more attractive investment compared to other comparable taxable bonds. This feature
of Green bonds provides a monetary incentive to tackle major social issues such as climate
change and switching to renewable sources of energy to reduce environmental harm. To qualify
for green bond status, a third party such as the Climate Bond Standard Board often verifies
them that the bond will actually fund projects that benefits the environment.

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2.2 Why are they in the news

In March, the Exim Bank of India issued a five-year $500 million green bond, which is India’s
first dollar-denominated green bond. The issue was subscribed nearly 3.2 times. The bank has
said it would use the net proceeds to fund eligible green projects in countries including
Bangladesh and Sri Lanka. Earlier, in February, Yes Bank raised Rs 1,000 crore via a 10-year
bond, which was oversubscribed twice.

2.3 Green Bonds’ Historical and International Trends

“Credible international entities such as IFC, ADB and [Singapore’s] Sembcorp have either
taken equity stakes or debt financed renewable projects in India. I think investments are
purely based on economic merits.”
~ Jayen Shah, Head of DCM at IDFC Bank (Mumbai)14

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The first green bond was issued in 2007 and was initially characterized as a niche product
pioneered by a handful of development banks. The “Climate Awareness Bond” was
issued by the European Investment Bank (EIB) in 2007, followed by the World Bank issuing
a “Green Bond” in 2008.15 Between 2007 and 2012, governments began to join international
organizations and issue their own green bonds and the market reached $10 billion by mid-2012.

With a growing market appetite for green bonds, there is increasing diversification of issuers
and investors in more currencies beyond the early investments by the United States
and Europe. The largest issuer in 2015 was the EIB, with KFW, EDF, and the Agricultural
Bank of China. New investors including Credit Agricole and HSBC made first time pledges,
and various consortia of banks formed to issue guidance on impact reporting, aimed at bringing
companies to market.
Corporate sector engagement has increased substantially since 2013, indicating high demand
among investors, including overall growth in the issuance of green bonds as well as the volume,
diversity and size of issues.17 In 2014, the green bond market reached $37 billion, almost triple
the total level of investment in 2013.
The United Kingdom, China, Germany, Japan, the Netherlands, Norway, and the United States
have shown significant growth in the green bonds market since 2014. Seven new markets
released $3.2 billion worth of green bonds in 2015 – Brazil, Denmark, Estonia, Hong Kong,
India, Latvia and Mexico.
$46 billion worth of green bonds were sold worldwide in 2015, according to Bloomberg New
Energy Finance. Investment is anticipated to continue increasing in 2016, following the strong
climate agreement at the UNFCCC climate negotiations in Paris.18 Overall, Europe hosts the
highest number of green bonds, with nearly $18.4 billion issued in 2015. About $10.5 billion
came from the U.S., where the market was mainly driven by municipal green bonds.19 Within
the next five years, China’s green bonds market may reap an estimated 1.5 trillion yuan ($230
billion) for renewable energy and environmental projects.20 The launch of diverse types of
green bonds and geographic expansion has indicated that the market is maturing and investor
interest is outpacing supply.
Total investment in green bonds is expected to exceed $60 billion in 2016.21 In fact, banks are
projecting the value of outstanding green bonds to almost double in 2016, to as much as $158
billion due to climate change-related projects becoming mainstream. This follows the upward
trend of growing renewable energy investments worldwide, with investment in developing
countries surpassing those in developed countries in 2015 for the first time. Following China’s
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leading $102.9 billion investment in renewables in 2015, India increased investment by 22
percent to $10.2 billion.
Green bonds currently fund renewable energy (38.3 percent), building and industry (27.5
percent), transport (10.2 percent), water (9.7 percent), waste management (6.2 percent), climate
adaptation (4.3 percent), and agriculture and forestry (3.9 percent). Although this represents
rapid growth of the green bonds market, it is still small compared to the overall $100 trillion
bond market. As the market matures, collaborative models are being created. For example,
Green Bond Market Development Committees representing various stakeholders are currently
being organized in Mexico, Brazil, Turkey, India, China, Canada and California to develop
green bond markets.

2.4 Who Is Involved in the Green Bond Market?

Green Bond issuers – Driven by supranational EIB, IBRD, and IFC in the early days, late 2013
and 2014 saw progression with new international agencies entering the field such as KFW,
FMO, and EDC. The market expanded to include corporates such as EDF, GDF Suez, Unilever,
and Unibail-Rodamco. U.S. municipals are the most recent participants, including
Massachusetts, Connecticut, California, as well as DC Water. Universities followed suit led by
MIT and University of Cincinnati.

Green Bond investors – Investors range from green dedicated funds and retail, to asset
managers, banks, corporations, pensions and insurance companies. Investors are not exposed
to the risk of specific projects – the repayment of the bond is subject to the credit risk of the
issuer; however, other forms of Green Bonds are emerging including asset backs and covered
bonds, where investors can take exposures to projects.

Outstanding Climate Investment Opportunities in Emerging Markets

More than half of the world’s population lives in urban areas, a number that is expected to
reach 70 percent by 2050. The success or failure of cities at addressing climate change will be
pivotal to efforts to limit global warming to 1.5 degrees Celsius. In a 2018 report, “Climate
Investment Opportunities in Cities - An IFC Analysis (2018),”(11) IFC estimates a cumulative
climate investment opportunity of $29.4 trillion across six key sectors in emerging market cities
through 2030. The largest share of the opportunity in green buildings ($24.7 trillion), covering

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new constructions and retrofits, as cities race to accommodate their growing populations. Other
key sectors identified for urban climate-smart investment include electric vehicles ($1.6
trillion), public transport infrastructure ($1 trillion), climate-smart water ($1 trillion),
renewable energy ($0.8 trillion)(13), and municipal solid waste management ($0.2 trillion).

Investment potential in cities by region and sector to 2030

Still, why are green bonds an attractive option

Shantanu Jaiswal, analyst at Bloomberg New Energy Finance, says, “Green bonds typically
carry a lower interest rate than the loans offered by the commercial banks. Hence, when
compared to other forms of debt, green bonds offer better returns for an independent power
producers,” Samuel Joseph, Chief General Manager, Treasury and Accounts Group, Exim
Bank of India, says as these bonds are meant for specific investors looking to invest in
renewable energy projects, pricing could be attractive.

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The bank’s green bond was priced at 147.50 basis points over US Treasuries (whereas, usually,
bonds are priced at treasuries plus 150 basis points) at a fixed coupon of 2.75 per cent per
annum.

2.5 Why should an investor get excited with lower interest?

Because, it inherently carries lower risk than other bonds. According to a KPMG report, in case
of a green bond, “proceeds are raised for specific green projects, but repayment is tied to the
issuer, not the success of the projects.” This means the risk of the project not performing stays
with the issuer rather than investor.

2.6 Green Bonds are Effective Capital Market Instruments

Green bonds are fixed-income instruments with one key distinguishing feature: proceeds are
earmarked exclusively for new and existing projects with environmental benefits. These relate
to climate change mitigation or adaptation and resilience and other environmental issues, such
as natural resources depletion, including loss of biodiversity, air, water, or soil. International
consensus is emerging on best practice in the issuance of green bonds. Most national
frameworks for green bond issuance align with the Green Bond Principles (GBPs), hosted by
the International Capital Market Association (ICMA), and/or the Climate Bonds Standard and
Certification, offered by the non-profit Climate Bonds Initiative. They are helping to align
definitions in a broad universe.
Green taxonomy is a unified classification system and an important resource for common green
definitions across global markets. It is expected to encourage investments in sustainable finance
by providing certainty for investors as to what is
classified as “green”. Green taxonomies typically include renewable energy, energy efficiency,
adaptation to climate change, waste management, pollution prevention, water management,
biodiversity and ecosystem protection, sustainable transport, sustainable agriculture, and green
buildings.
Green bond issuances have been growing in frequency as they provide benefits to issuers and
investors. Since traditional financial instruments are usually in the form of senior debt with
recourse to the balance sheet of the issuer, green bonds fit appropriately into investors’
traditional fixed-income allocations.

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The Fund aims to only hold primary market green bonds to maximize the growth of the green
bond asset class in emerging economies. However, during the portfolio construction phase,
allocations would include secondary market green bonds. This allows the Fund to create
additional liquidity for green bonds in the secondary market, and this extra liquidity would
potentially attract more investors into the market. Lastly, it allows the Fund to gather a broader
understanding on the state of green bond practices, such as disclosure practice, fostering a more
informed decision-making process to select best practice green bonds on the primary market.

AP EGO’s Portfolio Rotation Strategy

2.7 How well have green bonds performed globally

According to Bloomberg New Energy Finance, a record $38.8 billion in green bonds were
issued in 2014, 2.6 times the $15 billion issued in 2013. “Most issuances of international green
bonds have been oversubscribed suggesting a strong appetite for them especially when done
by a strong issuer like a large corporate or a government agency,” the report says.

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2.8 Who have been the issuers of these bonds?

In the period between 2007 and 2012, supranational organisations such as the European
Investment Bank and the World Bank, as also governments, accounted for most of the green
bond issue. Since then, corporate interest has risen sharply. In 2014, bonds issued by
corporations in the energy and utilities, consumer goods, and real estate sectors accounted for
a third of the market, according to KPMG.

2.9 What are the risks and challenges?

Globally, there have been serious debates about whether the projects targeted by green bond
issuers are green enough. There have been controversies too. Reuters a few months back
reported how activists were claiming that the proceeds of the French utility GDF Suez’s $3.4
billion green bond issue were being used to fund a dam project that hurts the Amazon rainforest
in Brazil.

2.10 There could also be a currency risk.

From an Indian perspective, a challenge of making investors subscribe could be the tenor and
rating of green bonds, reckons Bloomberg’s Jaiswal. “The downside is that green bonds in
India have a shorter tenor period of about 10 years in India whereas a typical loan would be for
minimum 13 years. This is less when compared to many international issuances.” Also, he says,
“Many target buyers of Indian green bonds may not invest in any bonds that are rated lower
than the AAA-.”

3. CURRENT STATE AND OUTLOOK OF THE GREEN BOND

MARKET
Emerging markets have been issuing green bonds since 2012, when South Africa made two
debut issuances, followed by issuances from Brazil, China, and Peru in 2014. After the People’s
Bank of China announced guidelines for green bond issuances in late 2015, China’s green bond
market quickly grew to $108.6 billion in cumulative issuances between 2012 and 2018, or
about 78 percent of the cumulative total of $140 billion in issuances from emerging markets
during that period. The next largest issuers were India ($7.7 billion), Mexico ($7 billion), and
Brazil ($4 billion) (Figure 2.1), followed by Poland, Indonesia, and South Africa, with each

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country issuing over $1 billion of green bonds. On a regional basis, East Asia and the Pacific
had the largest volume of green bond issuances cumulatively (81 percent), while Latin America
and the Caribbean (10 percent) and South Asia (5 percent) had the next highest levels (Figure
2.2). Despite the impact of market conditions in 2018, which saw an overall downturn in global
bond issuance compared to the year earlier, emerging market green bond issuance kept a robust
pace with $43 billion and over 90 new issuers. In addition, debut issuances in Indonesia,
Lebanon, Namibia, the Seychelles, Thailand, and Uruguay brought the number of emerging
countries with green bond issuances to 28 countries from 22 countries.

Emerging Market Green Bond Issuance, 2012-2018

Emerging Market Green Bond Issuance, by Region, 2012-2018

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While financial institutions in developed markets accounted for some 18 percent of total green
bond issuances, they were the largest-issuing sector in emerging markets, making up 57 percent
of cumulative green bond issuance, followed by nonfinancial corporates (25 percent),
government agencies (14 percent), sovereigns (2 percent), and municipals (1 percent) (Figure
2.3). Recently, from 2016 to 2018, new EM sovereign issuers entered the market. These
sovereign green bonds, which could serve as benchmarks for future issuances, were issued by
Poland (2016, 2018), Nigeria (2017), Fiji (2017), Indonesia (2018), and Lithuania (2018).

Emerging Market Green Bonds, by Issuer Sector, 2012-2018 ($ billion)

For most green bonds, proceeds were earmarked for projects that addressed environmental
concerns. In emerging markets, renewable energy made up the largest sector for use of
proceeds, while low-carbon transport, water, green buildings, and waste were the next largest
sectors.

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 Emerging Market Green Bonds Issuance, by Use of Proceeds, 2012-2018

Emerging Market Green Bond Issuance, by Currency, 2012-2018

Green bond issuances in emerging markets ranged from $1.5 million to $4.4 billion, with an
average issuance of $385 million. Some 34 percent of emerging market green bond issuances
were in hard currency (Figure 2.5). Excluding China, local currency bond issuances made up
6 percent of cumulative emerging market green bond issuances. About half of the bonds had a
credit rating, and 90 percent of those bonds were investment grade. As detailed in the interview
with Amundi, “Emerging Market Issuers Catching Up with Developed Market Counterparts”
many green bonds adhered to the Green Bond Principles or local green bond guidelines and
had external reviews and/or second-party opinions.

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Growth Forecasting
By the end of 2018, the green bond market in emerging economies totalled about $136 billion,
or about 0.5 percent of outstanding bonds in emerging markets. While green bond markets in
emerging countries initially grew at a slower pace than similar markets in developed countries,
they have had a noticeable “catch-up” in their share of issuances.
The forecast for the size of the green bond market in emerging markets has been calculated
based on two assumptions:
1) the annual bond issuance will remain stable at the 2018 level of $1.4 trillion(19)
2) the share of green bonds in emerging markets will range from 1.5 percent to 3 percent over
the next three years.
As green bonds continue to replace maturing conventional bonds, their market size could likely
reach between $210 billion to $250 billion 2021.

Green Bond Issuances, 2012-2018 Green Bond Market Size, 2012-2018

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3.1 FINANCIAL INSTITUTIONS AS AN ESSENTIAL SOURCE OF
FUTURE GREEN BOND ISSUANCES

Cross-border Bonds Issued by Financial Institutions in Emerging Markets

This section analyses cross-border conventional bonds in emerging markets, as issuers of these
bonds are considered potential sources of green bond issuances. The diversity of green bond
issuers increased in developed markets [Figure 2.3], with financial institutions representing
less than 18 percent of overall green bond issuances in developed markets. However, in
emerging markets, financial institutions accounted for 57 percent of cumulative green bond
issuances because many countries rely heavily on bank intermediation to supply debt financing.
Therefore, financial institutions in emerging markets remain a likely source of new green bond
issuances from 2019 onwards. With nearly 35 percent of green bond issuances in emerging
markets denominated in U.S. dollars or euros, a useful proxy to estimate the potential for green
bond market is to analyse the cross-border bond issuances by financial institutions in emerging
markets. Using Bloomberg data, an analysis of 159 emerging countries found that 44 of them
had financial institutions that issued cross-border bonds over the past five years (from 2014 to
2018) with a maturity of at least one year. The cumulative issuance of cross-border bonds was
over $640 billion ($147 billion in 2018), with some 291 financial institutions issuing 8,814
bonds (Figure 3.1).

The East Asia and the Pacific region represented some 68 percent of total issuance volume.
However, only 3 percent of that amount ($18 billion) came from outside China (Figure 3.2).
Issuances in the Latin America and the Caribbean region had the largest increase in issuances
in 2018, propelled by two large issuances in Costa Rica. Turkey, where over half of the
issuances from the Europe and Central Asia region originated over the past five years, saw a
decrease in issuances in 2018 as a reflection of market conditions. The Middle East and North
Africa region saw a steady increase in issuances led by the United Arab Emirates.

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 Cross-Border Bond Issuances by FIs, by Region, 2014-2018

China’s share of cross-border issuances between 2014 and 2018 exceeded that of any other
country with $419 billion, or 65 percent, of the cross-border bond issuances. United Arab
Emirates made up the second-largest share with $47 billion in issuances, while Panama – a
dollarized economy and offshore financial centre – had the second-highest number of cross-
border bond issuers, with an average bond issue size of $21 million.
Cross-Border Issuance by FIs, Top 15 Countries, 2014-2018

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Across emerging market regions, cross-border issuance by financial institutions points to the
strong potential for new green bond issuers to come to the market. As 45 percent of the cross-
border bonds covered by this analysis is either a three-year or five-year bullet bond (Figure
3.4), there is expectation for rapid new issuances as existing bonds mature, with the possibility
that some of these new issuances could be green bonds. With 33 emerging market countries
that have at least one financial institution issuing cross-border bonds of greater than $300
million (Figure 3.5), there are significant opportunities for green bonds to grow.
Implementation of an effective ESMS helps green bond issuers provide assurance to investors
and for investors, including asset managers, to verify if this is really the case.

Tenor of FI Cross-Border Bonds, 2014-2018 ($ billion) Volume of FI Cross-Border Bonds

Issuances, 2014- 2018 ($ billion)

3.2 Strategies to Strengthen India’s Green Bonds Market

Why are green bonds important for India

India has embarked on an ambitious target of building 175 gigawatt of renewable energy
capacity by 2022, from just over 30 gigawatt now. This requires a massive $200 billion in
funding. This isn’t easy. As reports suggest, higher interest rates and unattractive terms under
which debt is available in India raise the cost of renewable energy by 24-32 per cent compared
to the U.S. and Europe. “India has big goals in terms of renewable energy installations, but a
big hurdle has been financing and the cost of financing,” says Raj Prabhu, CEO and Co-founder
of Mercom Capital Group, a global clean energy research and communications firm.

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“Budget allocations have been insufficient. Renewable energy is still part of the larger
power/infrastructure funding basket in most banks, and with most financing going towards coal
power projects, there is very little funding left for renewable energy. Currently, options for
raising funds and investing in the “renewable energy story” in the public markets in India is
very limited,” he says. That’s why green bonds seem like a good option. In India, Indian
Renewable Energy Development Agency (IRDA) issued a tax free Green Bond in February
2014 for Rs.1, 000 each. It issued bonds with 10 year, 15 year and 20 year terms carrying
interest rates at 8.16%, 8.55% and 8.55% p.a. respectively. CARE and Brick Works gave it
AAA rating. Yes Bank has issued a 10 year Green Infrastructure bond in February 2015 raising
an amount of Rs.1, 000 crores. The amount raised by the bank would be diverted towards the
financing of the Green Infrastructure projects such as solar power, biomass, wind power and
small hydel projects. It has tied up with KPMG India to provide Assurance services annually
in accord with the green bond principles. In 2016 Yes Bank issued another green bond as a
private assignment with International Finance Corporation (IFC) as a sole investor for INR
3.15 billion. The bond has been rated as AA+ by ICRA and CARE. EXIM Bank of India issued
a five year $500 million green bond in March 2015. It is the India’s first dollar denominated
green bond.

“The simplicity of the [green bonds] market helped it become what it is today. We need to
develop guidance and encourage greater transparency, but also encourage growth in new
directions.”
~ Rachel Kyte, CEO & Special Representative of the UN Secretary General for
Sustainable Energy for All.

The green bonds market has been growing rapidly as it offers investors diverse issuances that
vary in size, maturity, currency and structure. Green bonds are becoming more attractive in
that they allow climate risks to be hedged separately from other financial risks. Development
banks’ mandated investments and the growing familiarity of institutional investors to recognize
the similarity of green bonds to classic bonds are also driving growth. Portfolio managers
looking for environmentally responsible investments have to consider risk-weighted returns
first. This means that green bonds have to be financially competitive
with other fixed income assets to meet the minimum investment criteria. While green bonds
benefit from a strong demand from environmentally-focused funds and therefore garner a small

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basis point premium over comparable corporate bonds, the following three objectives and
targeted strategies that can help strengthen and expand the market for green bonds in India:
1. Reduce the cost of capital
2. Stimulate demand from institutional and retail investors
3. Expand and diversify the issuers base
As laid out in the table and explored in detail below, there are key strategies to achieve each
objective and corresponding institutions and organizations to implement those strategies.
Reducing the Cost of Capital
Green bonds are an effective vehicle to channel low cost financing for renewable energy while
meeting the environmental targets of the investors. Green bonds can provide low cost financing
in several ways:
• Providing lower interest rates than typical domestic clean energy project
financing: Green bonds help overcome the high upfront cost of renewable energy
projects, the higher interest rate and shorter tenure of typical domestic financing
available by providing a funding opportunities with lower interest rates and longer
tenure loans.
• Being cost-competitive as compared to other corporate bonds: Research conducted
by Barclays suggests that green bonds on an average command a 20 basis points
premium over comparable corporate bonds, especially in secondary market trading, due
to a strong demand from environmentally-focused funds.48 While this premium is not
insignificant, it may not be enough by itself to meet the low-interest requirements of
clean energy especially in the Indian context and overcome minimal cost increases
necessitated by the accounting and certification requirements of green bonds.
• Bringing down transactional costs with higher volumes and green bond standards and
certification efficiencies of scale.
• For frequent issuers, the green investor market helps to widen access and reduces
the probability of investor fatigue. To lower the cost of capital further, we recommend
the following key measures:
• Reducing forex-hedging costs
• Working with swap counterparties that have a use for long term U.S. dollar funding;
• Credit enhancement products
• Certification and standardization

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Green bonds have emerged as one of the most prominent financial vehicles catering to
climate action specifically for projects requiring long-term finances. Long-term
investors including pension and insurance funds now prefer bonds which invest in green
assets as they understand the catastrophic impacts of climate change on their
investments.

In the past 10 years of their existence, green bonds have gone from being an esoteric
product to being widely accepted and used in the market. In 2018, worldwide, labelled
green bond issuance amounted to US$167.6 billion, led by the United States (with 20 -
percent market share) and followed by PRC (18 percent), France (8 percent), Germany
(5 percent) and the Netherlands (4 percent). The Climate Bonds Initiative estimated that
green bond issuance in 2019 could reach a record US$ 250 billion. As of November
2018, India had issued green bonds valued at US$ 7.15 billion. [14] The amount is
minuscule, given the size of India’s economy and when compared to the vastness of
green bond issuances by the US (US$ 34 billion) and PRC (US$ 31 billion).
One of the key reasons for the small scale of green bonds in India is the underdeveloped
domestic bond market. Project developers in India have largely relied on commercial
banks for finance although bank finance is not ideal for funding large -scale
infrastructure due to inherent asset-liability mismatch issues. The recent non-
performing assets (NPA) stress of the banking sector demonstrates this, as most defaults
are on infrastructure or real estate loans.

Between November 2018 and August 2019, green bond issuances from India shrunk
further due to multiple factors including interest rate, forex fluctuations and large-scale
NPAs in the banking sector. It was only in August 2019, that two large issuances
(Greenko: US$950 million and Adani Green: US$500 million) came in the international
market. To scale up the green bond market, the Securities Exchange Board of India
(SEBI) in 2017 issued national level regulatory guidelines for issuance and listing of
green bonds. The guidelines, however, fell short in defining the term ‘green’. The
Pension Fund Regulatory Authority (PFRDA) has reduced the minimum credit rating
for Indian pension funds from “AA” to “A”. This will give a fillip to the green bond
market as well. Going forward to expand the green bond market and bring in local
capital, the government can consider opening up the market for retail participation.

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However, to make the product attractive for investors, the incidental expenses
associated with green bonds—related to the rating of the bond and green certification—
need to be rationalised. This could be done by supporting the development of a robust
rating system for risk and the degree of green the underlying asset is.

Reducing Foreign Exchange Hedging Costs

The cost of borrowing from international markets can be fraught with uncertainty due to the
unknown and volatile nature of currency exchange rates, especially for bonds with long-term
maturities (longer than 10 years). International investors have to factor in the cost of volatility
of the Indian rupee vis-a-vis their home currency when making investment decisions.
Typically, investors manage exchange rate risk by buying hedging products such as options
and currency contracts. However, rupee hedging products are limited and costly. A greater
availability of currency risk hedging products, at competitive prices, can help lower the cost of
capital for the issuer and make Indian green bonds more attractive. DFIs such as the Exim India
have significant foreign currency balance sheets and can be effective counterparties in
currency swap contracts. Another policy option to cushion international investors from
currency depreciation is to provide dollar-denominated contracts, funded through a national
cess (tax). This could be created through the National Clean Environment Fund (NCEF) or a
reserve created through international climate grants. Solar power developers in India have
called for a sovereign fund to back dollar-based tariffs.49 In the long run, developing a robust
market for competitive hedging products is less expensive than directly bearing the cost of
forex hedging.

Rupee denominated bonds (RDBs) are a new avenue for borrowers in India to raise low cost
capital overseas without bearing the exchange rate risk.50 In this case, the issuer of the
bond borrows, and repays in due course, the debt in Indian rupees, thus the risk of currency
fluctuation lies with the investors rather than borrowers. For overseas investors, the
attractiveness of high yield Indian assets offsets the cost of currency hedging. Additionally,
international investors also benefit from any appreciation of the Indian rupee. Green RDBs
open up access to a whole new set of international investors for Indian clean energy projects.
To limit the impact of perceived creditworthiness issues in reaching a broad segment of
investors, international development finance institutes, such as IFC and ADB, can act

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as a bridge linking Indian RDBs to international investors. The IFC-Yes Bank Green Masala
Bond issued in 2015 on the London Stock Exchange is a good example of this strategy.51
IFC issued the 5-year rupee bond on London Stock Exchange and then used the proceeds of
the issue to invest in a green bond by Yes Bank, which in turn will funnel the proceeds to
its renewable energy and energy efficiency investments in India. Through this arrangement,
international investors are lending to IFC, rather than a relatively lesser-known Indian
borrower. Thus, the cost of hedging lies with the creditors rather than the borrower and IFC
provides the credit enhancement for this issue without any incremental cost to the ultimate
borrower.

Credit Enhancement

Lack of adequate credit history, or below investment-grade credit ratings, are typical barriers
for new clean energy players in raising capital through green bonds. There is a demand for
credit enhancement products such as partial credit guarantees and loan loss reserves at
competitive prices that enable issuers to meet the credit expectations of the investors.
Internationally, green banks have played a key role in providing credit enhancement products
for clean energy deals, including for green bonds. The Green Climate Fund and other
multilateral and bilateral climate funds can help capitalize green banks at national and sub-
national level, which can in turn provide credit enhancement for green bonds.

Standards and Certification: Defining what is a “green” bond

The green bonds market is growing rapidly, necessitating an effort to ensure the transparency
of projects and reporting through a standard mechanism. Environmentally-conscious investors
want to ensure green bonds proceeds are not used for non-green purposes (called “green-
washing”). Related issuance costs, including the extra cost for tracking, monitoring, reporting
the investment as meeting green criteria can create a barrier to scaling up the green bonds
market. Issuance costs can be reduced by adopting standard procedures to assess that a bond
fulfills its green objectives. Therefore, a robust Certification and Standardization (C&S)
scheme is an essential component of green bond-supported projects. The certification specifies
sectors in which green bond proceeds can be invested, such as renewable energy,

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energy efficiency, clean transportation, sustainable land use and climate adaptation projects.
Standards would also enhance investor confidence and increase the long-term credibility of the
Indian green bonds market by providing evidence to issuers and investors that the selected
green projects are achieving environmental benefits. Additionally, labelling a bond as a “green
bond” would give issuers access to a more diverse group of investors than regular bonds,
growing the overall market.

International Certification Standards: To address this gap in a uniform definition of what

types of projects a “green” bond should finance, international certification standards have been
developed. As described below, the mandatory Climate Bond Standard and voluntary Green
Bond Principles are the primary certifying standards for green bonds. The advantages of green
bonds in India utilizing international standards include increased transparency and potentially
lower transaction costs if an accepted universal standard is adopted and enforced by a
regulatory body. Reputational risk, a concern for large institutional investors, would be
addressed by an international standards. Furthermore, issuers can quantify the environmental
benefits to present evidence robustly, and quantification methods such as KPMG True Value
can be used.

India-Specific Certification Standards: Some stakeholders are concerned that given the
country’s unique needs, a certification standard should be tailored to the Indian context
rather than adopting an international standard. A country specific standard is viewed by some
as necessary to achieving green bonds’ greatest potential impact in India. However, it
can add costs for international investors to understand local standards and confirm they are
consistent with their portfolio standards. Additionally, differences in which specific asset
classes are considered “green” in a specific country vs. internationally may create difficulties
for otherwise interested international investors.
Credit rating agencies such as CRISIL, CARE and ICRA (formerly, Information and Credit
Rating Agency of India) may be the appropriate entities to develop and tailor such a standard
for India. Benchmarking an India-specific certification standard against international standards
can provide overseas investors with needed transparency and confidence to invest in green
bonds. Another strategy for India may be to not develop an altogether new standard, but work
with international standards bodies to develop India specific reporting guidelines.
The following examples describe three international examples of certifing green bonds on the
market:
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1.International mandatory standard: Climate Bonds Standard – London-based Climate
Bonds Initiative (CBI) is considered one of the leading certification entities for climate bonds
standards and developed the Climate Bond Standard (CBS). The CBS provides clear, sector
specific eligibility criteria for assets and projects that can be used to certify “climate bonds.”
In order to receive the “Climate Bond Certified” stamp of approval, a prospective issuer of a
green bond or Climate Bond must appoint an approved third party verifier, who will provide
a verification statement that the bond meets the CBS green credentials. Hero Wind Energy’s
R3 billion ($44 million) green bond issuance in January 2016 became the first certified climate
bond in India by receiving third party verification by KPMG and CBS certification.

2. International voluntary guidelines: Green Bonds Principles – The Green Bond Principles
(GBP), developed by the International Capital Market Association, are a voluntary process with
non-binding guidelines that recommend transparency and disclosure, and promote integrity in
the development of this fast growing market by clarifying the approach for issuance of a green
bond. In developing their principles for green bonds, GBP focuses on four principles – use of
proceeds, project selection and evaluation, management of proceeds, and reporting.

3.Country-specific standard: China’s Green Bonds Regulations – The central bank

(PBOC) on 22 December 2015 issued green bond issuance regulations for issuance in China’s
domestic interbank sector (which makes up 93 percent of China’s bond market, the world’s
third largest). These Guidelines are mandatory and “are meant to ensure that environmental
assessments have been done for all company lending and that projects financed by loans remain
in compliance with environmental are not allowed to provide financing to companies “in
default” of environmental laws. This places the banking regulator in a position to police green
bond issuance. The China Green Finance Committee has developed China green definitions,
partly based on the Climate Bonds Taxonomy; these have been endorsed by PBOC as
appropriate to use under its regulatory framework.

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4. Green Equities
Green equity products have been mushrooming throughout the market, using all sorts of
different approaches to green investing. The level of methodological clarity and transparency
is mixed. An example of a broad, comprehensive „climate change investment universe‟ is
provided in a recent report by DB Climate Change Advisors (2019). It identifies three broad
sectors: cleaner energy, energy and material efficiency and environmental resources.

Deutsche Bank Climate Change Investment Universe

Notes:
• Transport could also include mass transit and rail.
• Desalination is controversial, as its usually an energy intensive way of addressing water
supply issues. In some wealthier jurisdictions it can be built instead of more sustainable
water runoff harvesting, and/or drawing on and increasing use of fossil fuel-fired
power.

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The approach taken in this paper is to look at equity indices in more detail as they tend to be
more transparent and easier to compare. Index providers often have an incentive to be clearer
about the methodologies applied, than funds.
Indices are a primary investment tool for investment managers and investment owners as they
provide a benchmark or point of reference for the active investment decisions. Furthermore, a
substantial portion of funds and institutional mandates are managed „passively‟, i.e. by
tracking a reference index very closely.
In addition, exchange traded funds (ETFs) and derivatives can be connected to those indices.
The number of green ETFs has risen substantially in recent years. Liquidity, transparency and
cost advantages are often mentioned as reasons.

All major index providers have over time developed some sort of SRI, ESG and/or
environmental change indices. There is now wide choice of equity indices available, using
different approaches, definition, composition, coverage and methodology gives an overview
on some indices currently available to investors. Some indices have a relatively narrow sectoral
or thematic focus, e.g. on alternative energy or clean technology and innovation. Others span
the typical range of green activities, also including energy efficiency environmental
management and similar. Others again concentrate on just one factor, most prominently carbon
emissions. The oldest indices tend to be broader responsible or ESG indices that include
environmental as important but not sole factors.

Green equity indices - Overview

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The preferences for indices differ across countries and investors. In Japan, there is a focus on
environmentally themed indices. Technology and social aspects (e.g. community investing) are
popular in the USA, whilst in Europe the interest has been generally broad across all
responsible investment (RI) approaches. Indices see rising demand for different strands and by
all investor groups, driven also by changes in legislation, regulation and government initiatives
(e.g. „green ISAs‟ in the UK). (UKSIF 2010)

Indices also differ in terms of their approaches to selecting and weighting of the index
constituents. There are 3 basic approaches by index providers17 (Table 4):
1. screening: create a green / ESG / SRI subset of a broader market index
2. best-of-class: e.g. top 20% within sector or industry (sometimes with neutral sector or
country weightings)
3. re-weighting: adjust the weightings of stocks in a standard market index according to a green
(carbon) factor (usually keep sector weightings neutral to minimize tracking error)

Green selection approaches

Index providers use internal and/or external research resources for the determination of their
green universes. Given the different approaches, it is no surprise that the definition of green
investment varies across different indices (see Table 5).
Table 5 also demonstrates the major differences in terms of the metric used. Some providers
select green stocks on a qualitative basis, i.e. because they operate in certain green sectors or
produce green technology. Others take the whole stock market universe and specify
„greenness‟ quantitatively, e.g. 50% or more of the revenue needs to be climate change-

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related18, or stocks with the highest contribution to reducing emissions. Finally, in a best-of-
class approach, it is all relative, as the top 10% or 20% of companies of a sector are selected.
As a consequence, not surprisingly, the actual indices all look very different in all dimensions,
including the number of stocks, average sizes, liquidity and sector breakdowns. The outcome
is a great variety in the constituent companies in the various indices. They range from small,
highly specialized niche producers to well-known global players that are deemed to be
somehow „green‟ or at least „greener than others‟. Appendix 1 gives more detail on a number
of relevant indices.

There are limitations and weaknesses of green indices. Biases frequently found include (they
do not necessarily apply to all indices):
• Sector biases (e.g. overweight in technology, TMT, financials, pharma)
• Country biases (e.g. underweight in Japan, Emerging Markets)
• Size bias (overweight in larger stocks, or small stocks, depending on the index approach
• Cyclicality.

More generally, there are other issues with green indices (again, they do not necessarily apply
to all):
• Data quality and transparency (e.g. Sinclair 2012)
• Poor company reporting on ESG or green factors
• Lack of disclosure, e.g. from SME, emerging markets
• Debates over performance and risk compared to standard indices
• Tracking error relative to general market indices (e.g., how much should green indices
deviate from main-stream market indices?).

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In conclusion, the analysis of green and responsible equity indices reveals major differences
across indices on the market. There are different dimension to this. One is the investment focus
of indices. Some indices have a relatively narrow sectoral or thematic focus while others span
the typical range of green activities. Another category concentrates on just one factor, most
prominently carbon emission. The oldest indices tend to be broader responsible or ESG indices
that include environmental as important but not sole factors.

Indices can also be grouped by their selection approach, i.e. screening, best-of-class or re-
weighting of stocks. There are also major differences in terms of the metric used. Some

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providers select green stocks on a qualitative basis while others try to specify „greenness‟ using
some quantitative measurement. Some indices stress the absolute values, in others it is all
relative to peer companies.

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5. Green insurance

Green insurance schemes are those schemes which provide risk cover at a low premium and
enhanced coverage for green products to minimize the impact of climate change, thereby
fostering good corporate behaviour. In India at present HSBC collaborated with Allianz to
provide its customers with green reinvestment insurance. It provides cover to buildings
obtaining certification from international environmental standards such as US Leadership in
Energy and Environmental Design (LEED) and Building Research Establishment
Environmental Assessment Methodology (BREEAM). This cover provides an additional 5%
over and above the normal insured loss amount with an only minor increase in premium. This
would encourage the builders to create more energy efficient buildings. One of those
innovations takes the form of green commercial building insurance, which is rapidly facilitating
increased green construction and development for businesses, homes and on campuses across
the U.S. According to McGraw-Hill Construction, spending on green building construction is
projected to reach $96 billion in 2013, up from $36 billion in 2008.

In addition, the recent stimulus package allocated $6.3 billion for energy efficiency and
conservation grants, providing even greater incentive for organizations to build new green
buildings and upgrade their current buildings to green standards. The rise of the green
movement, combined with the formation of the United States Green Building Council’s
Leadership in Energy & Environmental Design (LEED) green building standards, growing
demand for green buildings and a significant improvement in the variety and quality of green
building materials available, mean that going green today is more than an environmental
decision – it’s an economic one as well.

Consider the following statistics:

• Green buildings increase a building’s value by an average of 7.5 percent and improve
return on investment by 6.6 percent while decreasing operating costs by 8 to 9 percent,
according to McGraw-Hill’s Smart Market Report.
• McGraw-Hill also found that green buildings generate higher revenue due to higher
rents and occupancy rates.
• Green buildings generate lower operating costs by reducing waste output and energy
consumption. According to the Environmental Protection Agency (EPA), green

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 buildings with a focus on recycling can reduce waste output by 90 percent and use 30
percent less energy, equating to a 5 percent increase in net operating income.
• Green buildings also provide better insurance risk. On average, green buildings suffer
fewer losses and are safer to insure due to the extensive commissioning process required
to become LEED certified.

5.1 Getting Started

Upon deciding to go green, property owners face an overload of decisions regarding priorities,
strategies, funding and timing. EPA Energy Star is a great resource for getting started as they
have a page devoted to higher education at The following action items provide suggestions on
how to begin putting an environmental commitment into action:

Establish clear, measurable goals. The first step is to decide exactly what’s desired when it
comes to going green, and to develop a clearly defined vision of success.

Conduct a baseline analysis of current practices. To effectively measure the economic

impact of going green, having a baseline measurement for comparison purposes is essential.
Conducting an Environmental Protection Agency (EPA) Energy Star assessment can help an
organization see how well or how poorly their energy management practices compare with
their peers.

Identify low hanging fruit. When a business first begins its commitment to green operations,
often there are a number of high-impact changes that can make it greener and more sustainable
without requiring major capital investments. Many of those changes are located in building
operations, including implementing green cleaning programs, making sure that cleaning
materials are stored appropriately in ventilated spaces, and beginning an integrated pest
management program, in which green alternatives to poison are used to keep pests at bay. Other
low-cost/high-impact changes include:

• Implement recycling and waste management programs.

• Build sustainability into curriculum. The United States Green Building Council
(USGBC) offers a wealth of case studies and resources.
• Consider LED lighting solutions. The payback period is a little longer than CFL retrofit
projects but LEDs don’t have the disposal and mercury problems of CFLs.

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Consider Retro-Commissioning Older Buildings. Just as the commissioning process creates
safer, more efficient new buildings, retro-commissioning is a process in which an existing
building is brought up to the LEED Existing Building Operations and Maintenance standard
through energy-saving and air quality improvements. Retro-commissioning often begins with
a complete building audit, in which all building systems are evaluated. The process is especially
helpful in prioritizing improvements and identifying areas of potential risk, resulting in cost
savings and greater efficiency.

Invest in Operations Training

If an organization goes to the trouble to install the latest energy-efficient systems, it’s
important that the staff running the facilities fully understand the technology involved and how
to use it. A building can have a cutting-edge system, but if the individual running the operations
of the building is not fully trained to use the system, the expected benefits may not be realized.
Creating an Integrated Design Process (IDP) helps ensure that everyone involved with the
building – from the architect to the contractor to the building manager – is fully briefed on the
technology and the systems involved.

Review Goals and Determine Funding and Scheduling

Once goals are established, the next step is to prioritize changes and determine which changes
will require additional funding.

Identify Available Resources

Through the federal stimulus package, the government is currently offering billions of dollars
to businesses to upgrade their facilities and make them greener. Most property owners have
buildings targeted for renovation, and it’s important to identify the criteria that need to be met
to qualify for funding.

An Ongoing Commitment

Far from a passing trend, green insurance is at the intersection of the need for environmental
protection for the sake of the planet and strategic business practice. The future is certainly

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green, and as more technology, innovation and research are released, the industry should expect
the current boom in green construction and remodelling to continue to expand

5.2 Governments as (re-)insurers and (re-)insurers of last resort

Public authorities may be involved as insurers or may sponsor state-mandated catastrophe

insurance pools. Such insurance programmes can alleviate political pressure to allocate
substantial governmental resources in the aftermath of a natural disaster. But the frame work
needs to prevent the problem of moral hazard, e.g., policy-holders might be encouraged
to behave in riskier ways once they know that they will be covered by public resources
whether they protect themselves beforehand or not. Through public-private partnerships,
insurers may offer their expertise and tools (such as risk information platforms) to assess the
risks, sell policies and in some cases advise government sin their investment decisions. Insurers
may also be required to provide insurance coverage for medium-sized losses; the government
limits its exposure and insurers bear a level of risk that is within their capacity. Governments
may also manage re-insurance programmes. They can require the private market to take on and
pay for some proportion of the risk, i.e., quota-share treaties. Governments may serve as (re-
)insurers of last resort by taking on risks above a certain disaster damage level, i.e., stop-loss
re-insurance. This approach blends the potential risk-spreading capacity of the government and
the ability of the market to apply insurance principles and also to use its administrative
capacity, i.e., collecting premiums, marketing and handling claims. Public programmes,
therefore, may provide for cover at the highest risk levels, while the private market retains
some or all of the lower tiers of risk

5.4Parametric based weather insurance and other innovative solutions

Parametric index-based weather insurance

Under traditional weather-related insurance schemes, such as property or liability insurance,
insurance compensation will be paid out following an assessment of the insured party's losses.
Once a loss assessment is completed and agreed, the insured party receives an indemnity pay-
out. Under a parametric index-based insurance scheme, losses resulting from extreme weather-
related events are compensated when a pre-defined weather index deviates from the historic
average, irrespective of the actual loss. That type of insurance relies on the measurement of an

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objective and independent index that is highly correlated with the actual loss. Traditional
indemnity-based and parametric insurance can be combined.
Building on lessons and experience from different regional initiatives parametric insurance
could be considered as a solution both for the private and public sectors, e.g., for
critical public infrastructure. It can improve affordability of insurance by reducing administra
tivecosts, because it does not include a claims adjustment process. It also speeds up pay-outs,
and can be associated with simpler insurance contracts. Parametric covers can help reduce
information asymmetries between insurers and customers. On the other hand, such
contracts present a significant basis risk, i.e., the claim pay-out does not match the actual loss
incurred and policy-holders are not necessarily able to assess it

5.5 Meteorological research

The complexities of parametric design and basis risk may be significant constraints on
extending these schemes. Meteorological research needs to identify viable indexes. It can
only be scaledup for widespread coverage if there is systematic coverage of the territory, with
weather stations sufficiently close to insured persons and risk zones mapped. In addition to the
physical presence of meteorological stations, there is a need to collect, maintain, share and
archive data and to make them readily available in relation to insured events. The use of satellite
data in combination with numerical analyses and forecasts has already resulted in a continuous
increase in the skills required for making meteorological forecasts. Similarly, opportunities
related to satellite-based indices that use remote sensing tools can be explored. Many economic
sectors are sensitive to climate conditions, hence to a changing climate. Therefore, the benefits
of investing in weather infrastructure will extend beyond the development of index-based
insurance products, notably to forestry and agricultural products.

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5.6 Insurance-linked securities
Insurance-linked securities such as catastrophe bonds or other alternative risk transfer
instruments can be seen as an effective way of increasing insurance capacity for highly
improbable, low-frequency, high-severity natural catastrophe events. For insurers, re-insurers
and businesses, the bonds provide multi-year protection against natural catastrophes with
minimal counterparty credit risk. To investors, they offer the potential to diversify and reduce
their portfolio risk as the bond defaults do not correlate with defaults of most other securities.

5.7 GLOBAL INSURANCE MARKET TRENDS

This 2019 edition of the Global Insurance Market Trends report looks into several key aspects
of the health
and performance of the insurance industry among reporting countries:

• the underwriting performance of the life and non-life insurance businesses, based on
the evolution of gross premiums and claims payments;

• the investment allocation and investment performance of insurers; and

• the profitability of insurance companies, measured by returns on shareholder equity.

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Underwriting performance

Gross premiums continued to increase in most markets

Gross premiums continued to increase in most countries in 2018, especially in the non-life
insurance sector. Premium growth partly depends on the demand for insurance products, which
varies across lines of business and is influenced by external factors such as economic growth
and changes in taxation practices among other factors.

Divergent trends in claims payments although a return to lower levels in the non-life sector in
some countries. There was not a common trend worldwide on claims payments in 2018,
especially in the life sector where claims payments increased in half of the reporting countries
and declined in the other half. In the non-life sector, claims payments returned to lower levels
in some countries after 2017, which was one of the largest years on record for insured losses
from natural catastrophes.

Non-life insurers generally continued to record underwriting profits, with underwriting

performance improving in most countries.

The low interest rate environment influences the supply of life insurance products
A number of countries (e.g. Latvia, Lithuania, Portugal) reported that the persistent low interest
rate environment had an impact on the supply of products from insurance companies, which
are increasingly offering products with lower embedded guarantees or unit-linked products
(where policyholders bear investment risks).

Premium growth depends on the demand for insurance products. The Russian authorities noted
an increase in demand for life insurance products, driving the 29.9% rise in gross life premiums
in 2018. By contrast, Australia and Poland reported a decrease in the popularity of unit-linked
products, likely accounting for the decline of gross life premiums in 2018 in these countries (-
9.5% in Australia and -12.6% in Poland).

Taxation of life insurance products can affect the demand

The way that life insurance savings contracts are taxed can influence the demand for some life
insurance products, as observed in Latvia in 2018. A tax reform in 2018 in Latvia changed the
conditions under which policyholders can benefit from tax deductions for contributions to some

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life insurance savings products. This change probably accounted for the decline in premiums
in 2018 compared to 2017 (-2.4%).

Different dynamics observed in the non-life sector worldwide

Similar to the life sector, different dynamics could be observed in the nonlife insurance sector.
Latvia recorded the strongest increase in non-life gross premiums in real terms in 2018
(18.9%), followed by Sweden (12.7%), Estonia (12.4%), Egypt (10.1%) and Lithuania
(10.1%). Most countries – 35 out of 50 reporting countries – observed a positive growth rate
of up to 10% in 2018. The level of gross premiums fell in ten reporting countries.

Non-life insurance policies cover various types of risk

Non-life insurance policies cover various types of risk. In the OECD taxonomy, non-life
insurance includes motor vehicle, fire and other property damage, accident and sickness
insurance, amongst others. These different insurance classes can experience different rates of
growth and could offset one another in terms of their impact on the overall level of premium
growth in the non-life insurance sector.
Motor insurance is one of the main non-life insurance categories in many countries and
therefore performance in this insurance class may drive the overall trends observed in the non-
life sector. The overall increase in nonlife premiums in Latvia (18.9%) and Lithuania (10.1%),
for instance, may be partly due to an increase in premiums for motor vehicle insurance.

Premium growth depends on the evolution in the number and prices of policies sold
Premium growth depends on both the number of policies sold and the evolution of the price of
insurance policies. The 10.1% increase in non-life premiums in Lithuania was likely driven by
an increase in the number of motor vehicle insurance policies and the cost of that coverage.
The Lithuanian authorities reported an increase in the sale of new vehicles (which probably led
to more insurance policies) coupled with an increase in the price of these policies.

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Annual real growth rates of gross claims payments in the life sector in selected countries,
2018

Notes: Growth rates of gross claims payments take into account the variations in outstanding
claims provisions (when this information is available) to better reflect the magnitude of the
obligations that the industry had in 2018 as a result of insured events that occurred. When the
breakdown of gross claims paid or changes in outstanding claims provisions for composite
undertakings into their life and non-life businesses was not available, the breakdown in each
subsector was assumed the same as for gross premiums written. Data cover conventional
insurance products only.

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Annual real gross premium growth in the life and non-life insurance sectors

Gross premiums still on the rise on average in 2018

In most countries, gross premiums grew in 2018, continuing the growth observed in previous years.
Gross premiums grew by 2.5% and 3.5% respectively in the life and non-life insurance sectors in real
terms (i.e. after adjustment for inflation) among the 50 reporting countries.

Gross premiums increased in real terms in most countries in 2018, especially in the non-life insurance
sector. Gross premiums increased in 27 countries (i.e. over half of the sample) in both life and non-life
insurance sectors, in 13 countries in the non-life sector only, and in 6 countries in the life insurance
sector only. Four countries recorded lower amounts of gross premiums in both life and non-life
insurance sectors in real terms in 2018 compared to 2017: Ireland, Korea, Luxembourg and Turkey.

Annual real growth rates of direct gross premiums in the life and non-life sectors in
selected

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Notes: Countries are labelled with their ISO code. ISO codes are available on the webpage of
the Statistics Division of the United Nations. The red triangle shows the simple average of the
growth rates of gross premiums in the life and non-life sectors in 2018 among the selected
countries. Data refer to all undertakings (i.e. domestic undertakings and branches and agencies
of foreign undertakings operating in the reporting country) except when only data on domestic
undertakings are available.
Source: OECD Global Insurance Statistics.

The scale of the change in life gross premiums varies across countries
In the life sector, the growth rate of gross premiums ranged from 29.9% (Russia) to -13.0%
(Ireland) in 2018. Russia observed the largest increase of life gross premiums in real terms in
2018, followed by Portugal (15.2%). Four other countries recorded growth of over 10% in
2018. The growth of life gross premiums was more moderate in 27 countries, almost flat
(between 0% and 1%) in four of them: Colombia, Estonia, Guatemala and Slovenia. Life gross
premiums declined in 17 countries, with the largest declines occurring in Ireland, Poland and
Turkey. Insurance companies engaged in life insurance activities provide different types of
products, with different performance dynamics within the same country. Life insurance
traditionally covers protection against risks affecting the policyholder directly (i.e. not the
property of the policyholder) and investment or savings contracts (e.g. unit-linked products,
annuity contracts). Trends in premiums written for these different products may vary within
countries such as in Hungary where authorities observed an increase in premiums for traditional
life insurance products but a decline in premiums for unit-linked products.

Combined ratio for the non-life sector in selected countries, 2017-2018

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Notes: The combined ratio is calculated in this report as the sum of gross claims payments,
changes in outstanding claims provisions, gross operating expenses, and gross commissions
divided by gross written premiums. i.e., Combined ratio = “Loss ratio” + “Expense ratio”,
where:
• Loss ratio: (Gross claims paid + changes in outstanding claims provisions) / gross written
premiums (the latter used as a proxy for gross earned premiums)

• Expense ratio = (Gross operating expenses + commissions) / Gross written premiums. When
available, this chart shows the breakdown of the combined ratio in 2018 between loss and
expense ratios. The combined ratio is used in analysing the underwriting performance of
insurance companies, especially for non-life insurance where the risk exposure is short-term -
- generally one year. The use of the combined ratio for long-term business such as life insurance
is of limited use only. These ratios are calculated on the whole non-life business (i.e. all
business of non-life insurers and non-life business of composite insurers). When the breakdown
of one of the variables for composite undertakings into their life and non-life businesses is not
available, the breakdown in each subsector was assumed to be the same as the one for gross
written premiums.

Variations in outstanding claims provisions are not taken into account in the calculation of the
combined ratio of some countries (such as Honduras and Nicaragua) for which data are not
available for either 2017 or 2018. The results of OECD calculations may differ from those of
national authorities (such as Colombia), which may use premiums earned instead of premiums
written and take into account the reimbursements received from reinsurers in the calculation of
the combined ratio.

(1) Source: NAIC. Data refer to the combined ratio of the US property and casualty insurance
industry.
(2) Data include reinsurance accepted business.
(3) Data include business abroad of domestic undertakings.
(4) Earned premiums (instead of gross written premiums) for direct insurers were used in the
calculation of the combined ratio. The numerator of the combined ratios includes reinsurance
business accepted by direct insurers.
(5) The result is provided by Bank of Lithuania.

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 Adopting practices that are known to be safe for the environment—aka "going green"—might
also help you save on your insurance costs. Whether you're considering an eco-friendlier car,
a more sustainable home or "green" business practices, check out this sampling of insurance
benefits and products for the environmentally conscientious.

5.8 Green insurance incentives for motor vehicles

Fossil fuels deplete our resources and contribute to pollution—and many insurers offer
discounts for vehicles that don't gas guzzle.
• Hybrid vehicle premium discounts are offered by a number of auto insurance companies (and
similar discounts may also be available on boat insurance for hybrid-electric boats and yachts).
• Endorsements that allow hybrid replacement—that is, optional coverage whereby, after a total
car loss, the insured can replace his or her traditional automobile with a comparable hybrid
vehicle.
• Alternative fuel premium discounts, which apply if your car uses an alternative energy source
such as biodiesel, electricity, natural gas, hydrogen or ethanol.
• Pay as You Drive (PAYD) programs, which require the installation of a device to track the
miles driven in your car. The PAYD offers policy discounts to drivers who, according to their
sensor, drive fewer miles than the average—thus saving consumers money while reducing
accidents, congestion and air pollution.

5.9 Green insurance for homes

Insurers are helping to promote sustainable building practices by offering eco-friendly policies
to homeowners, which include options such as:
• Premium discounts for LEED certified homes. LEED is short for the Leadership in Energy and
Environmental Design Green Building Rating System. This system, developed by the U.S.
Green Building Council, is a recognized environmental standard in the building world and has
high efficiency and sustainability standards.
• Eco-friendly replacement materials endorsements, which are offered on some standard
homeowners policies. After a loss, these allow the insured to replace or rebuild with more
sustainable materials, practices and products.
For example, some companies will pay homeowners extra if they recycle debris rather than
send destroyed materials straight to a landfill, and replace old kilowatt-hungry appliances with

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 Energy Star machines, which meet an energy-savings rating created by a joint program of the
U.S. Environmental Protection Agency and the Department of Energy.
• Broad coverage for alternative energy sources. For homeowners who generate their own
geothermal, solar or wind power and sell any surplus energy back to the local power grid, there
are now policies that cover both the extra expense of temporarily buying electricity from
another source and for the income lost during a power outage (as long as the outage is caused
by a covered peril). Policies also generally cover the cost of getting back online, such as utility
charges for inspection and reconnection.

5.10 Green insurance for businesses

There are many green commercial property insurance policies and endorsements directed at
specific segments of the business community such as manufacturers. Examples of these include
policies that:
• Cover installing "green" building systems and materials to replace the standard ones, after a
loss. These eco-friendly replacements would include energy efficient electrical equipment and
interior lighting, water conserving plumbing and nontoxic, low odor paints and carpeting.
• Allow "green certified" rebuilding in the event of a total loss. In addition to the building itself,
this coverage may pay for engineering inspections of heating, ventilation, air-conditioning
systems, building recertification fees, replacement of vegetative or plant covered roofs and
debris recycling and loss of income and costs incurred when alternative energy generating
equipment is damaged.

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6. Green loan schemes

At first, there were no recognised market standards to help determine what qualifies as a green
or sustainability linked loan. While the Green Bond Principles first published by the
International Capital Markets Association in January 2014 were a useful indication of the
direction being taken in the capital markets, they focussed on bonds rather than loans, and on
green use of proceeds rather than sustainability. In the loan markets, the Equator Principles
have long been used by financial institutions for managing environmental, social and
governance risks in the project finance market, but their application was limited in the wider
loan markets.

Without the benefit of recognised market standards there was a risk of diverging approaches
being taken on what amounts to a green or sustainability linked loan. At its worst, that risked
loans being presented as green or sustainability linked, when in reality they were little different
to an ordinary loan, sometimes referred to as “green washing”.

Market standards for green loans were published by recognised industry associations in March
2018, and were followed in March 2019 by sustainability linked loan standards. Green and
sustainability linked loans are now recognised products globally.

The drivers for the growth in green and sustainability linked loans are changing. What started
as a mostly voluntary approach to addressing climate change risks and the need for businesses
to act responsibly is beginning to be overtaken by regulation. In a speech in 2015, the Governor
of the Bank of England, Mark Carney, set out how the catastrophic impacts of climate change
will be felt beyond the traditional horizons of most banks, investors and financial policy
makers, imposing costs on future generations. He warned that once climate change becomes a
defining issue for financial stability it may be too late, and noted that risks to financial stability
will be minimised if the transition towards a lower-carbon economy begins early and follows
a predictable path.

Considerable progress has been made in the years since that speech. In March 2019, Mark
Carney spoke of a step change in demand and supply of climate reporting, the push to better
climate change risk management and how advances in reporting and risk analysis are paving
the way for investors to realise the opportunities in climate-friendly investment.

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A raft of national and international initiatives on climate change and corporate governance are
starting to change how companies operate. There seems little doubt that in the face of ever
increasing pressure, the growth of the green and sustainability linked loan markets is set to
continue.

Development of green and sustainability linked loans

Green Washing, Green Loan and Sustainability Linked Loans Principles

6.1 Green washing

One of the hurdles faced by the green and sustainable finance market generally is the potential
for green washing. In October 2018, the UK’s Financial Conduct Authority (the “FCA”) issued
a discussion paper on “Climate Change and Green Finance”, which noted that:

“Minimum standards can be helpful for enhancing investor confidence and trust and enabling
markets to develop. For example, minimum standards may help ensure investors understand
what they are buying and prevent misleading ‘green washing’ of financial products and
services. Green washing is marketing that portrays an organisation’s products, activities or
policies as producing positive environmental outcomes when this is not the case.”

Minimum standards have been developed for the loan markets. The Loan Market Association
(“LMA”), Asia Pacific Loan Market Association (“APLMA”) and the Loan Syndications and
Trading Association (“LSTA”) launched their Green Loan Principles with the support of the
International Capital Market Association (“ICMA”) in March 2018. The Green Loan Principles
are similar in scope to ICMA’s own Green Bond Principles. The initiative began in 2017 at the
instigation of the Global Green Finance Council, of which the LMA and ICMA are founder
members, and the APLMA, which established a working group in 2016.

A year later, in March 2019, the Sustainability Linked Loan Principles were published by the
LMA, APLMA and the LSTA.

Both the Green Loan Principles and the Sustainability Linked Loan Principles are voluntary
frameworks, widespread adoption of which would mitigate the risks of green washing in the
loan markets.

The Green Loan Principles

The Green Loan Principles establish four key criteria:

• use of proceeds;

• the process of green project selection;

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 • management of proceeds; and

• reporting.

Use of proceeds

The fundamental defining feature of a green loan is that the proceeds are applied for green
purposes. The Green Loan Principles include a non-exhaustive list of green projects towards
which the proceeds of the loan could be applied, and require that the relevant green project
provides clear environmental benefits.

Process of green project selection

Green borrowers are expected to communicate certain key information to their lenders
including details of their wider environmental sustainability objectives, the process by which
they determine whether their projects are eligible green initiatives and the related eligibility
criteria. They are also expected to provide details of any wider green standards to which they
seek to conform.

Management of proceeds

The Green Loan Principles provide that the proceeds of a green loan should be credited to a
dedicated account, or otherwise tracked by the borrower in an appropriate manner. This
requirement is aimed at ensuring transparent use of proceeds for eligible green purposes in
order to promote the credibility of green loans. By holding green loan proceeds separately,
borrowers can more easily ensure that they are applied towards the purposes for which they are
drawn, particularly where the facility may be used for more than one purpose.

This also reduces the risk that proceeds are applied for other purposes and are not available to
fund the relevant green project. Where the loan proceeds are to be applied over a period of
time, borrowers are likely to prefer a staggered drawdown profile to drawing the whole amount
of the loan to hold in a deposit account pending application (since the interest received on that
deposit is likely to be less than the interest accruing on the drawn loan).

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It is acknowledged in the Green Loan Principles that tracing the use of loan proceeds can be
easier with a term loan than a revolving facility because revolving facilities tend to be flexible
in the purposes for which they may be drawn. This can be addressed by structuring the facilities
into separate tranches to make tracing easier – there are examples of revolving facilities split
into tranches for general corporate purposes and for green purposes, for instance.

6.2 Reporting

The borrower of a green loan is required to record the green projects towards which proceeds
are applied, together with a description of the project, the amount allocated and the expected
impact of the project. Borrowers should renew that information annually and report it to their
lenders.

The Green Loan Principles recommend (but do not require) third party oversight, and
acknowledge that borrowers can seek guidance and input on their green loan processes in a
variety of ways – examples include taking advice from external environmental consultants on
their activities and arranging certification against external green assessment standards.

The Sustainability Linked Loan Principles

The key distinction between a green loan and a sustainability linked loan is that categorisation
as a sustainability linked loan is not conditional on the proceeds being used for a particular
purpose. Instead, the defining feature is that the terms of the loan incentivise the borrower to
improve its performance against certain pre-determined environmental, social and governance
(“ESG”) criteria. In practice this would typically mean that the pricing on the loan is directly
linked to the sustainability performance of the borrower.

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6.3 Summary of the key features of the Green Loan Principles and the
Sustainability Linked Loan Principles
Green Loans
Aim To facilitate and support
environmentally sustainable
economic activity.
Definitions Loan instruments made available
exclusively to finance or refinance
new or existing “green projects”.
Restrictions on
purpose The fundamental feature is the
utilisation of the loan for “green
projects”. The Green Loan
Principles set out a non-exhaustive
list of 10 categories of green
projects, including renewable
energy, energy efficiency and
pollution prevention and control.
Impact of No pricing impact is contemplated
pricing on in the Green Loan Principles. There
borrower’s are facilities which have been split
performance into tranches for green purposes
and for other purposes where the
green tranche attracts lower pricing.
Green Loans
Review/ Borrowers should maintain records
Reporting of the use of green loan proceeds,
including a list of the green projects
to which the proceeds have been
allocated together with a
description of the project, amount
allocated and the expected impact.
External review is recommended
but not required.
Sustainable Linked Loans
To facilitate and support
environmentally and socially
sustainable economic activity.
Loan instruments and/or contingent
facilities (such as bonding lines,
guarantee lines or letters of credit)
which incentivise the borrower’s
achievement of ambitious,
predetermined sustainability
performance objectives.
No specific requirement for use of
proceeds – loan could be for a
borrower’s general
corporate purposes
The hallmark of a sustainability linked
loan is that the borrower’s performance
against predetermined sustainability
objectives affects the interest rate,
incentivising improved performance
over time.
Sustainable Linked Loans
The need for external review of the
borrower’s performance against its
predetermined sustainability
objectives is decided on a case by case
basis. For public companies, public
disclosures may be sufficient to verify
performance for the purposes of
the loan.
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Market Activity

According to Bloomberg data, global green and sustainability linked loan volumes exceeded
US$99bn in 2018, with sustainability linked loans accounting for US$43.2bn of that Global
sustainability linked loan activity in particular is clearly on the rise, and the rate of growth is
increasing year on year. Projected sustainability linked loan volumes for 2019 exceed US$81bn
based on extrapolating from deals announced between 1 January 2019 and 12 June 2019.

Aggregate volumes of announced green and sustainability linked loans, 2014-2019YTD

A look at aggregate volumes of sustainability linked loans by jurisdiction over recent years
shows that European jurisdictions are particularly active, but the product reaches into markets
globally.

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 Aggregate volumes of green & sustainability linked loans 2017-2019 (US$bn)

Sustainability linked loan activity is spread across various sectors, but has been dominated by
borrowers in the utilities, financials and consumer sectors (see Figure 4).

"Global green and sustainability linked loan volumes exceeded US$99bn in 2018, with
sustainability linked loans accounting for US$43bn of that."

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Europe

European markets currently lead global sustainability linked loan volumes, with a share of
more than 80% of the market (see Figure 5). Activity has focussed mostly on Spain, France
and Italy.

The Americas

While only a handful of sustainability linked loans have been made to US companies, aggregate
volumes of announced deals to date total approximately US$11bn according to Bloomberg.
Many of the larger transactions have been for subsidiaries of European companies that have
entered into sustainability linked loans in their own right already.

Asia-Pacific

Green and sustainability linked lending is also attracting considerable attention in the Asia
Pacific markets. The first sustainability linked loan in the region was reported to have been
signed in March 2018, and the first green loan dates back to September 2018, both for
Singaporean companies.

Aggregate volumes of announced sustainability linked loans by borrower industry, 2017-

2019YTD

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Aggregate volumes of announced sustainability linked loans borrowers region 2017-2019
YTD

6.4 Trends In Green And Sustainability Linked Loans

The Equator Principles were first published in 2003 and incorporate the International Finance
Corporation Performance Standards and the World Bank Group’s technical industry guidelines
for projects in emerging markets. The Equator Principles are intended to help ensure that
project finance transactions are undertaken in a socially responsible way and in accordance
with appropriate environmental management practices.

While widely adopted in the project finance sector, the Equator Principles are rarely
encountered in ordinary corporate loan transactions. The introduction of the Green Loan
Principles may have broader reach into other parts of the loan markets, but they are less
established than the Equator Principles.

While the Green Loan Principles do not contemplate the pricing on the loan being linked to
green use of proceeds, that linkage has been a feature of some corporate financings. In one
example, a revolving credit facility for general corporate purposes was split into two tranches
– the first tranche, which was available for general corporate purposes did not benefit from any
discount, but the second tranche, which was available only for green purposes had reduced
pricing.

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"Two-way pricing mechanisms better incentivise performance by providing for a pricing
reduction if sustainability criteria are met, and applying a pricing increase where performance
declines."

One-way or two-way pricing

Early financings were structured such that if the borrower satisfied its sustainability criteria,
the margin on the loan was reduced. The size of that reduction varied between loans and
markets, but might typically be in the range of 0.02% to 0.04% on a general corporate
financing. In some markets the discount might be higher – as much as 0.10% to 0.20%.

Where sustainability targets were not met, the margin calculation mechanism on those
financings had no penalty for poor performance. Instead the margin reduction was simply not
applied.

More recently, two-way pricing mechanisms have been introduced on some deals. Two-way
pricing mechanisms better incentivise performance by providing for a pricing reduction if
sustainability criteria are met, and applying a pricing increase where performance declines.

The underlying objective of incentivising borrowers to make improvements to their

sustainability profile is probably more likely to be achieved through two-way pricing
mechanisms, but it is possible that they could be viewed in a less positive way – after all, they
result in lenders making greater returns on loans from borrowers who are not meeting
sustainability targets.

There are examples of alternative structures being considered, which could mitigate that
concern. One idea replaces increases in pricing with a requirement to make additional payments
into a separate bank account should sustainability targets not be met. Those amounts could then
be reinvested into improving the sustainability profile of the borrower.

"As the market becomes more sophisticated, rating methodologies are becoming more
tailored."

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6.5 Third party oversight

The Sustainability Linked Loan Principles state that the need for external review of the
borrower’s ESG performance is to be negotiated and agreed on a transaction by transaction
basis. Where information relating to sustainability performance targets is not publicly available
or otherwise accompanied by an audit or assurance statement, the Sustainability Linked Loan
Principles recommend that external review of those targets is sought. Even where data is
publicly disclosed, independent external review may be desirable. The majority of deals signed
to date require external review rather than relying on self-reporting. This is in some ways
similar to the requirement for an independent environmental and social consultant under the
Equator Principles.

A number of factors influence whether third party oversight is required by lenders. At a general
level, the integrity of the product is promoted by credible independent review. In many cases,
self-reporting is not feasible because borrowers do not have the internal expertise to perform
the role themselves. Larger corporates, which may have the necessary internal expertise to self-
report, are encouraged by the Sustainability Linked Loan Principles to thoroughly document
that expertise and their internal processes.

One reason borrowers might prefer to self-report is to avoid incurring an increased cost burden.
It is worth bearing in mind the wider trend toward companies assessing and reporting on their
ESG performance for other purposes, so to the extent information is already being gathered, it
may be possible to repurpose it for a lower incremental cost.

6.6 Methodology changes

A less obvious concern is the potential for external ESG rating providers to change their
methodologies unilaterally. There are many entities in the market that research and rate
corporate sustainability, although reporting in the loans market is concentrated on a smaller
group of providers.

Each of the ESG rating agencies considers various data points to arrive at their respective
ratings. Their rating methodologies are not only varied from each other, but evolve over time.
In part that reflects shifts in perception towards particular risk factors – what is considered
green or sustainable today may be less so tomorrow. For example, the production of electric
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vehicles might in some cases rely on the transport and use of raw materials that are extracted
using polluting methods or perhaps involving poor employment conditions. Early ESG ratings
tended not to differentiate between sectors when assessing the relevance of particular risks, but
as the market becomes more sophisticated, rating methodologies are becoming more tailored.

Evolving rating methodologies can also be the result of consolidation in the market. For
example, Sustain analytics acquired ESG Analytics in 2015. Vigeo Eiris was formed in 2015
by the merger of Vigeo and Eiris, both of which were ESG data providers. There are also moves
from credit rating agencies into the market – Moody’s acquired a majority stake in Vigeo Eiris
in April 2019.
Concerns have been raised about the low correlation between different ESG rating agencies’
assessment of the same company, which contrasts with the strong positive correlation generally
seen in the context of credit ratings. This is a challenge for investors seeking a comparative
assessment across companies with ratings provided by different sources. It is perhaps less of a
problem in the loan markets where a particular ESG rating agency’s rating is being used to
demonstrate an improvement in the performance of the borrower over time rather than to
compare different borrowers. In time, the industry may well develop a more uniform approach,
but to get there will require greater standardisation of the various methodologies used currently.

Changing methodologies could create a potential difficulty for the sustainability linked loans
market. It is agreed when the loan is entered into that the pricing will change by reference to
whether particular ESG performance targets are hit. If a rating agency changes its calculation
methodology for whatever reason during the life of the loan, and that results in changes to a
particular corporate’s rating, the pricing on the loan may also change. Whether or not
methodology changes are significant enough to have a substantial impact is another question.

It is not uncommon for the facility agreement to include a list of possible rating providers or
otherwise contemplate that the rating provider could change over the life of the loan.

6.6 Sustainability criteria

The suggested criteria listed in the Sustainability Linked Loan Principles are indicative only –
the critical factor is that the criteria chosen are ambitious and meaningful to the borrower’s
business.

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Market participants are not tied to using only the criteria listed in the Sustainability Linked
Loan Principles. Metrics such as target CO2 emissions are common, but there are examples of
novel criteria relevant to the borrower’s business, such as the proportion of electric vehicles in
an electricity company’s fleet, or improvements in uptake of energy consumption monitoring
tools among customers of a utility company. Criteria can be tailored to the business – for
instance, the three-year average intensity of CO2 emissions in kilograms per megawatt hour of
power produced by an electricity company.

It is common for pricing to be set by reference to the borrower’s overall ESG rating (which is
typically expressed on a scale of 0 to 100, although some ESG rating agencies use a scale
similar to that of the credit rating agencies). The borrower’s ESG rating is usually assessed
annually, and a discount (or increase) to the applicable margin is applied if the ESG rating has
moved more than a few points higher or lower than the initial ESG rating at the time the loan
was entered into. The threshold for a change to the ESG rating to impact the applicable margin
varies, but tends to be in the range of two to five points (on a scale of 0 to 100). The annual
changes to the margin are not usually cumulative – the discount (or increase) is applied each
year to the originally applicable margin if the ESG rating has moved sufficiently from the initial
ESG rating, rather than to an already discounted (or increased) figure.

On transactions where specific ESG criteria are used rather than an overall rating, different
discounts (or increases) can be applied for each specific target that is met. The alternative is an
all or nothing approach that requires all targets to be met before the pricing changes.

What Is Driving The Rise Of Green And Sustainability Linked Loans

There is no single driver for the rise of green and sustainability linked finance. Instead, a raft
of national and supranational initiatives are part of a wholesale shift to embed climate change
risk and ESG risks at the heart of business strategy.

The Equator Principles

Adoption of the Equator Principles referred to earlier in this report is voluntary, but many
financial institutions use the Equator Principles as a primary tool for managing ESG risks and
impacts in the project finance market. The Equator Principles paved the way for other
sustainability initiatives in the loan markets.

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UNPRI

The UN Principles for Responsible Investment (“UNPRI”) are a longstanding voluntary

initiative to incorporate ESG issues into investment practice. The UNPRI focus on, amongst
other things, the incorporation of ESG issues into investment analysis and ownership policies
and the disclosure of ESG issues.

Recommendations of the Task Force on Climate-related Financial Disclosures and Principles

for Responsible Investment

The shift to embed climate and ESG risk factors into corporate decision making gained further
traction following the Paris Agreement in 2015. In December 2015, the Financial Stability
Board announced the establishment of an industry-led Task Force on Climate-related Financial
Disclosures, with the goal of developing voluntary, consistent climate-related financial risk
disclosures for use by companies in providing information to lenders, insurers, investors and
other stakeholders. In June 2017, the Task Force published its recommendations (the “TCFD
Recommendations”), which give guidance on how to disclose clear, comparable and consistent
information about the risks and opportunities presented by climate change. The core elements
of the TCFD Recommendations concern governance, strategy (including scenario analysis),
risk management and metrics and targets, each in relation to climate risk.

The impact of the TCFD Recommendations is significant, with financial institutions

increasingly taking note of the TCFD Recommendations in their sustainability disclosures.
There is potential for compliance with the TCFD Recommendations to become mandatory (on
a comply or explain basis) in the near to medium term.

Market Leading Expertise

We have extensive experience advising on green and sustainable loan transactions. We are also
at the forefront of legal and regulatory developments on ESG across Europe, Asia and the US,
as national and regional regulators drive changes to the banking landscape.

We offer our clients a global service, both in outlook and reach. Our network of 30 offices is
reinforced by an integrated alliance with Allens, the leading Australian law firm with offices
throughout Asia, our collaborative alliance with Webber Wentzel, South Africa’s premier full-

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service law firm, and our best friend relationship with Talwar, Thakore & Associates (TT&A),
a leading Indian law firm. In regions where we or they do not have an office and may not
practice local law, we have strong relationships across local firms.

Rationale For Green Infrastructure Investment Framework

The International Energy Agency (IEA) estimates that to halve energy related
carbon dioxide emissions by 2050, investments in energy supply and use should beincreased
by US$46 trillion over the business as usual (BAU) scenario.
This translates into US$750 billion of additional investments a year by 2030 and over US$1.6
trillion of additional investments a year from 2030 to 2050. Additionally, the energy portfolio
mix should shift toward a significantly greater contribution by climate friendly technologies.
While such an investment trend has already begun, it is estimated that by 2020 investments
will be at least US$150 billion a year short of the required levels.
Recent World Bank and IEA studies have noted that a large proportion of this in-vestment
shortage will need to be provided by East Asia and Pacific (EAP) region countries. Thus, up to
US$80 billion a year of additional investments in low-emission projects and technologies
(green investments) is needed to achieve these objectives, there by “bending” the carbon
emission curve (see Figure 1).The Copenhagen Accord, followed by the Cancun Agreement,
took significant steps toward mobilizing the necessary funding reaching an agreement to raise
US$100 billion a year by 2020.
• A High-Level Advisory Group on Climate Change Financing (AGF), established by
the UN Secretary General, categorized the sources of funds into four groups:
• Public sources for rants and highly concessional loans, including the removal of fossil
fuel subsidies, direct budgetary contributions and a variety of taxes on carbon and other
transactions;
• The development of bank-type instruments;
• Carbon finance; and
• Private capital, as a major source of the total funding.

The Advisory Group also indicated potential sources of financing that would allow scaling up
investments in the developing world. In addition, the AGF emphasized the importance of
maintaining a carbon price between US$20 to US$25 per tonne of CO2 which would in turn

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generate an estimated US$100 billion to US$200 billion of gross private capital flows.
However, the question of financing green infrastructure investments,
A particularly “how” green infrastructure investments are evaluated, designed, and financed
has still not received due attention. In order to address the financing challenge, the EAP region
of the World Bank initiated work on assessing financing of green infrastructure investments
and exploring how investment opportunities could be improved in client countries. The first
step of this

6.7 Economical Rationale Of Green Investments

The Stern Review on the Economics of Climate Change

states: “Climate change presents a unique challenge for economics: it is the greatest example
of market failure we have ever seen.” Climatic changes, which can damage economies and
livelihoods across the world are caused by GHG emissions that are considered a “global
negative externality” as the emitters do not pay for the costs they impose. A GHG negative
externality is, therefore, a “market failure” because market solutions are not socially optimal.
For most products available in a well-functioning market, the market system works as a kind
of cost-benefit calculator. The revenue received from the sale of the product reflects the
economic benefits the products provided to consumers, while the costs reflect the economic
value of the resources used. In this case, the profit criterion—that a firm will only make
products where the revenue exceeds the costs—also performs a social cost-benefit function.
However, when some of the costs are not included in the market mechanisms—as happens with
negative externalities—the profit calculus of the market is no longer socially optimal

6.8 Economic Policy Solutions for a Global Externality

There are standard economic tools for the prevention of negative externalities. These tools
involve imposing monetary burden, for instance in form of pollution taxes, cap-and-trade
systems, and, of course, regulation making it illegal to emit pollution above certain levels.
However, these standard solutions rely on governments having the ability to impose
regulations, taxes, or subsidies and the power to enforce them. These solutions become difficult
to apply to a global externality, because there is no global government. Instead, such
interventions require voluntary agreement between nations. The Kyoto Protocol represented a
step toward such coordinated action. However, not all countries signed the agreement, and the

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Protocol only imposes limits on some of those countries that did. The Kyoto Protocol is set to
expire in 2012, but has not yet been replaced with any other global and binding agreement to
limit emissions. In the interim, the international community and national governments continue
to work toward ways to cooperate in reducing GHG emissions. For example, the inter-national
community has committed to provide US$30 billion for the period 2010-2012through a Green
Climate Fund (GCF).
Another initiative, the Climate Investment Fund (CIF), has current spending capacity of
US$6.5 billion.
Such initiatives, collectively referred to a green infrastructure finance, are growing in
importance. However, it is clear that this level of funding does not meet the level needed to
finance required volume of low-emission investments. As discussed above, the estimated
annual investment short-fall for climate mitigation and adaptation actions by 2020 will reach
at least US$150 billion.
Only a fraction of the needed investments can be provided by actual commitments from the
GCF and CIF.As a result, the international community has recognized that the majority of new
investment financing will need to come from private sources. Global financial markets can
easily supply the volumes of finance required, but will only do so if the investments area
attractive. However, many environmentally desirable investments do not over a commercially
attractive return.

6.9 Economic Principles for the Efficient Use of Green Infrastructure

Finance
Green infrastructure finance resources are limited. Therefore, economic efficiency requires that
green finance maximize its contribution to its intended objective of GHG emissions abatement.
There are three key economic principles that, if followed, will tend to increase the efficiency
with which green finance is used:

Economic principle 1: Green infrastructure finance should reduce costs (or in-crease revenues)
for low-emission investments, thereby offsetting the externality of GHG emissions, increasing
returns on low-emission projects, and leading to more investments in low-emission projects.

Economic principle 2: Funding should be concentrated on investments with the lowest cost
per tonne abated.

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Economic principle 3: Financial support should not exceed the amount that is needed to cause
investment in the project.

Economic Principle 1: Green Infrastructure Finance Offsets the GHG Externality The lower
costs, higher revenues, or lower risks offered by green finance offset the market failure that
GHG emissions are not priced. This contributes to making conditions, which are currently tilted
against low-emission projects, more equitable. Such a development will increase investment
levels in low-emission projects. One way public finance achieves this is by lowering the costs
of projects, including reducing the costs of financing. By offering concessional terms—for
example, below market interest rates, and longer tenors—green finance changes the returns
available on projects. Other green finance mechanisms, such as CDM or feed-in tariffs, can
increase the revenue investments earn. Green finance is sometimes viewed as a means of
providing additional capital. However, provision of capital is not the most important role for
the public sector. Rather, the concessional terms that green finance owners can leverage private
finance through changing the returns on projects. Since concessionally is the attribute that
makes green finance powerful, it is useful to be able to measure the value of the concessionally
offered. By comparing the cash flows under a concessional finance option with the cash flows
under a financing on market terms, the value of the concessionally can be derived. Any
concessional financing can be considered as a blend of a grant and a loan on market terms (see
Box 1). The grant component captures the value of the concessionally. This “grant equivalent”
essentially makes the difference as to which investments attract private finance. The grant
equivalent also represents the real cost to the public sector of the financing, and therefore is the
scarce resource that must be used as efficiently as possible. In the following analysis, references
to allocating green finance resources are primarily references to allocating the concessionally.
For simplicity, the analysis at this stage treats all green finance as though it were grants. The
next chapter discusses the actual concessional finance structures that can be used.

Economic Principle 2: Projects with Lowest Cost per Tonne Abated Should Receive Priority
There will not be sufficient green finance to leverage private investments into all possible low-
emission projects. Therefore, the scarce resource of public green financing must be used
judiciously, to maximize the GHG abatement achieved. The guiding principle will be to target
resources on those projects with the lowest abatement cost—the lowest cost incurred to abate
GHG emissions by one tonne. This is illustrated by a simple example. If building energy-
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efficiency projects need financial support of only US$5 per tonne of GHG abated, but solar
photovoltaic generation needs subsidies of US$50 per tonne of GHG abated, then obviously
US$50 dollars green finance could abate ten tonnes if applied in building efficiency projects,
and only one tonne if applied to solar photovoltaic generation. In practice, the abatement costs
of all projects cannot be known. Information costs prohibit any approach that requires all
projects in an economy—or ultimately in the world—to be ranked from lowest abatement cost
to highest and funded accordingly. A similar result can be achieved in an information-
economizing manner by seeing ceilings for support. If a ceiling per tonne of GHG abated is set
at a level that roughly equilibrates the demand for support from projects below the ceiling with
the total value of support available, then the objective of concentrating scarce green finance
resources on the projects with the lowest abatement costs will be achieved. The problem of
selling the ceiling is nontrivial and is discussed further below, but this approach is clearly more
analytically tractable than an approach requiring an actual ranking of all projects.

Economic Principle 3: Only a Minimal Amount of the Financial Support Should Be Provided
Maximizing abatement for any given amount of concessional finance also requires that no
project receives more support than the minimum amount needed to achieve financial viability
and attract private investments. This is illustrated by a simple example. If a building energy
efficiency project needs a financial contribution of US$5 per tonne to proceed, but actually
receives US$10 per tonne in financial support, some green finance resources has been wasted.
It would have been preferable to pay the project only the US$5 per tonne needed to allow it
to attract private capital to cover the investment cost. The remaining US$5 could then be used
to support another project by leveraging more private finance and abating more emissions for
the same amount of green finance.

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6.10 Green loan India

Green loan schemes are the financing schemes offered by commercial banks and financial
institutions at concessional interest rates directed towards providing support to investment in
energy efficient projects. State Bank of India (SBI) had launched a Green Home Bank loan
scheme at low interest rates to encourage the customers to opt for Green housing i.e., the
buildings that are certified by rating agencies such as Leadership in Energy & Environmental
Design (LEED) India, India Green Building Council (IGBC) and TERI – GRIHA from TERI-
BCSD India. ICICI Bank has launched a scheme of Vehicle finance which aims at reducing
the interest rate by 50% on the loans taken by the consumers on purchase of cars employing
renewable sources of energy like the Civic Hybrid of Honda, Tata Indica CNG, Reva electric
cars, Mahindra Logan CNG versions, Maruti's LPG version of Maruti 800, Omni and Versa
and Hyundai's Santro Eco. Under its Home finance schemes the bank attempts to reduce the
processing fees of customers purchasing homes in LEED certified buildings. (Raghupati and
Sujhatha, 2015) Union Bank of India offers schemes extending loans to farmers for purchase
of solar water heaters, solar water pumps and installing of solar home lighting system. Punjab
National Bank offers medium term loan schemes to farmers for construction of green houses,
setting up of biogas plants with sanitary latrines and has a scheme of PNB’s Saur Urja Yojna
for small farmers to finance the purchase of solar home lighting and water heaters. India being
a developing country has a bond market operating in the nascent stage.

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7. Green Investment in India

Historically, India has always incorporated sustainable development as a way of doing

business. In Vedanta, business is seen as genuine and a vital piece of society, yet basically it
ought to make riches for the general public through the correct methods for activity. 'Sarva loka
hitam' in the Vedic writing alludes to 'prosperity of partners'. This implies a moral and socially
capable framework must be essential to all business endeavours. All the more as of late, similar
to the case with other creating economies, the period of globalization and privatization of the
1990s saw expanded capital speculation with resource creation through new monetarily
suitable activities, generation of more merchandise and enterprises, extending market outreach
from nearby to provincial to national and even worldwide levels. The orderly unfriendly effect
of more extensive industrialisation on condition was likewise a core interest. Notwithstanding,
environmental change concerns got more extensive acknowledgment and acknowledgment
with the marking of the Kyoto Protocol. India exhibited its sense of duty regarding fighting an
Earth-wide temperature boost by endorsing the convention in August 2002. Since Sustainable
advancement objectives request gigantic capital commitment which can't be given by
Governments and open area establishments alone, a system has been set up to include various
partners. As a feature of the Legislative system, The Companies Act, 2013 commands that
bigger organizations ought to contribute atleast 2% of their normal net benefits every year
towards Corporate Social Responsibility (CSR) exercises which incorporates, between alia, the
accompanying:

• Promoting preventive medicinal services and sanitation and influencing accessible safe
drinking to water;
• Ensuring natural supportability, biological adjust, security of widely varied vegetation,
creature welfare, Agroforestry, preservation of characteristic assets and keeping up
nature of soil, air and water;
• Contributions or assets gave to innovation hatcheries situated inside scholastic
organizations;
• Rural improvement ventures

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7.1 Future scope of green finance in India

Environment sustainability being a key issue on worldwide level has increased the scope for
investment in green projects utilizing renewable energy resources. Therefore, many banks and
financial institutions would look forward at tapping this growing sector. Thus, there will be
increase in demand for Green bonds and structured green funds. Moreover, investors would
get the benefit of diversification from investment in such bonds. This is true in context of India
also as a study of Mc Kinsey & co. found that a probable increase in carbon emissions to 5 –
6.5 million MT in India could be lowered by 30% to 50% by 2030 by investing in energy
efficient technologies in building infrastructure and for this purpose there would be need for
an additional 600 – 750 billion Euros even after accounting for steep decline in cost of
renewable energy technologies. International Finance Corporation (IFC) has taken a step in
this regard. It has decided to invest $75 million in green bonds issued by Punjab National Bank
Housing Finance Ltd. in 2015. These are secured non – convertible debentures whose proceeds
will be directed towards the construction of Green residential buildings certified by World
Bank’s EDGE. In India a Council on Climate change under the supervision of Prime Minister
was constituted in 2007 and reconstituted in 2014 for adaptation and mitigation of climate
change. It has launched various programs like National Action Plan on Climate change,
Jawahar Lal Nehru National Solar Mission, National water Mission, National Mission for
Enhanced Energy Efficiency, National Mission on Strategic Knowledge for Climate Change,
National Clean Energy fund. Other programs like Auto Fuel vision and Policy 2025, Expert
groups on Low Carbon Strategies, etc. In 2015 the Green Climate Fund set up under the
framework of the United Nations Framework Convention on Climate Change (UNFCCC) has
accredited NABARD as National Implementing Entity (NIE) to finance clean energy projects
in India.

7.2 Recent government policies and incentives of green finance in India

The Recent Government Policies and Initiatives which have Increased the Scope of Green
Financial Products In India are as follows:

• India’s National Action Plan on Climate Change recommended that country should
generate10% of its power from renewable energy resources by 2015 and 15% by 2020.
Of India’s installed power generation capacity of 2, 55,012.79 megawatt (MW),
renewable power has a share of 12.42% or 31,692.14 MW which shows that there exists
a huge scope for investment in this sector.

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 • The Ministry of New and Renewable Energy (MNRE) has revised its targets for energy
capacity to 1, 75,000 MW till 2022, comprising 1, 00,000 MW solar, 60,000 MW
wind,10,000 MW biomass and 5,000 MW small hydro. These revised targets demand
a huge investment. Since, the sanctioned budget would not suffice so MNRE has asked
the public and private sector financial institutions such as Power Finance Corporation
(PFC), Rural Electrification Corporation (REC), Indian Renewable Energy
Development Agency (IREDA),
• IFCI Ltd, SBI Capital Markets ltd and ICICI bank ltd to raise funds.
• The finance ministry has increased the clean energy cess on coal by Rs.100 per metric
tonne to fund clean environment initiatives. The scope of National Clean Energy fund
(NCEF) has been expanded to include financing and promoting clean environment
initiatives and fund researches towards that end.
• The government has also proposed the use of renewable energy resources in railways
sector. It includes use of CNG in train operations, setting up of water recycling plants,
use of solar energy to illuminate coaches, station buildings and platforms. There is also
a proposal to change the design of locomotive cabin to reduce the noise level.
• Other initiatives on part of government includes its plans for creating a solar army,
providing venture capital to ambitious solar power generation projects and setting up
of solar parks totalling 20,000 MW over a period of five years.
• Indian Innovation Lab, a new initiative of MNRE aims at bringing the public and
private leaders on common platform to develop innovative instruments that would
mitigate risks and direct more investment for green growth in India. It has launched
four winning ideas: Loans for SME, Rooftop Solar Private Sector Financing Facility, P
50 Risk solutions and Renewable Energy Integrated Hedging, Equity and Debt fund.

7.3 Green Investment in India

Historically, India has always incorporated sustainable development as a way of doing

business. In Vedanta, business is seen as genuine and a vital piece of society, yet basically it
ought to make riches for the general public through the correct methods for activity. 'Sarva loka
hitam' in the Vedic writing alludes to 'prosperity of partners'. This implies a moral and socially
capable framework must be essential to all business endeavours. All the more as of late, similar
to the case with other creating economies, the period of globalization and privatization of the
1990s saw expanded capital speculation with resource creation through new monetarily

79 | P a g e
suitable activities, generation of more merchandise and enterprises, extending market outreach
from nearby to provincial to national and even worldwide levels. The orderly unfriendly effect
of more extensive industrialisation on condition was likewise a core interest. Notwithstanding,
environmental change concerns got more extensive acknowledgment and acknowledgment
with the marking of the Kyoto Protocol. India exhibited its sense of duty regarding fighting an
Earth-wide temperature boost by endorsing the convention in August 2002. Since Sustainable
advancement objectives request gigantic capital commitment which can't be given by
Governments and open area establishments alone, a system has been set up to include various
partners. As a feature of the Legislative system, The Companies Act, 2013 commands that
bigger organizations ought to contribute atleast 2% of their normal net benefits every year
towards Corporate Social Responsibility (CSR) exercises which incorporates, between alia, the
accompanying:

• Promoting preventive medicinal services and sanitation and influencing accessible safe
drinking to water;
• Ensuring natural supportability, biological adjust, security of widely varied vegetation,
creature welfare, Agroforestry, preservation of characteristic assets and keeping up
nature of soil, air and water;
• Contributions or assets gave to innovation hatcheries situated inside scholastic
organizations;
• Rural improvement ventures

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2.CHAPTER
RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

1. To review the existing literature on Green investment initiatives taken by the developed and
developing countries and study the recent developments in this area.

2. To study the kind of green financial products and services being offered by the foreign and
Indian markets and their challenges.

3. To understand the future scope of Green Investment.

4. To understand the green products and their long term benefits.

5. To understand the Green Investment and its relation with sustainable development.

6. To study the world implications of green investment.

Hypothesis

• Hypothesis (H0): Awareness of Green Investment is not related to the age of the
respondents.
• Hypothesis (H1): Awareness of Green Investment is related to the age of the respondents.

Scope of the study

• The project will provide us the better platform to understand the history, growth and various
aspects of the Green Investment
• It will also help to understand the behaviour of Indian and Foreign investment towards
various investment avenues Green Investment.
• It will also help to understand how people change its workings by shifting the preferences
of the investment avenues related sustainable development.

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• Purpose of the Study

The reason for choosing our research topic was to make our peers aware of the green investment
sector. The researcher’s interest has been focused on assessing the current awareness of the
green investment options available in the market among different age groups. The growth of
green financing in the Indian banking sector and the large number of banks with green
financing options and the awareness of this was the focus of the research. To analyse the data
collected from the primary source, students of the Department of Professional Studies, Narsee
Monjee College (Deemed to be University), Shannon index and Simpson Index were used.
These indices are usually used to analyse biodiversity among species using qualitative data.
This qualitative data has been condensed into quantitative data by identifying patterns within
the responses and recording the responses to each pattern.
It takes into account the investor’s point of view.
• The total number of financial instruments in the market is so large that it needs a
lot of time and resources to analyse them all.
• As the analysis is based on primary as well as secondary data, possibility of unauthorized
information cannot be avoidable.
• Research was carried on in Mumbai.
• Investment pattern has been analysis has been limited to only 50 individuals.

Problem Identification:
Analyse the investment pattern of people and the popularity of different products (Green Bonds
, Green Insurance, Green Equities, Green loans ) provided by the financial institutions and
banks for Green Investment.

Research Design:

We select the descriptive research method approach. In this approach for the data collection
we conduct semi structured interview. Descriptive statistics tell what is, while inferential
statistics try to determine cause and effect so descriptive and exploratory study is conducted.
A questionnaire method was constructed and various investors filled up the questionnaire and
that becomes the base for analysis.

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Firstly, we asked open ended questions and used probes and prompt to get the deep information
about our topic and to keep the respondent on track. We conduct interview from experience
respondent so that we get the accurate information about our topic. Our research based on
understanding the factors which effect investment decision of an individual. Our data collection
method is cross sectional. We collected all the interview at once

Data Collection Techniques

Primary Data
Primary research involves the collection of original primary data by researchers. It is often
undertaken after researchers have gained some insight into an issue by reviewing secondary
research or by analysing previously collected primary data. It can be accomplished through
various methods, including questionnaires and telephone interviews in market research.

Method of Data Collection

The data collection component of research is common to all fields of study help us to collect
the main points as gathered information. Data collection methods for impact evaluation vary
along a continuum. At the one end of this continuum are quantitative methods and at the other
end of the continuum are Qualitative methods for data collection.
A questionnaire is a question format that limits respondents with a list of answer choices from
which they must choose to answer the question. Commonly these types of questions are in the
form of multiple choices, either with one answer or with check-all-that-apply, but also can be
in scale format, where respondent should decide to rate the situation on scale.

Drafting of a questionnaire
A questionnaire is a research instrument consisting of a series of questions and other prompts
for the purpose of gathering information from respondents. Although they are often designed
for statistical analysis of the responses, Questionnaires have advantages over some other types
of surveys in that they are cheap, do not require as much effort from the questioner as verbal
or telephone surveys, and often have standardized answers that make it simple to compile data.

Sample Design
The sample design encompasses all aspects of how to group units on the frame, determine the
sample size, allocate the sample to the various classifications of frame units, and finally, select

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the sample. There are two types of sampling: non-probability and probability sampling. Non-
probability sampling uses a subjective method of selecting units from a population, and is
generally fast, easy and inexpensive. Therefore, it's sometimes useful to perform things like
preliminary studies, focus groups or follow-up studies.

Sample Size
The sample size is an important feature of any empirical study in which the goal is to
make inferences about a population from a sample. In practice, the sample size used in a study
is determined based on the expense of data collection, and the need to have sufficient statistical
power.
The Sample Size for this study is 50.

Tools used for data analysis

The analysis of data collection is completed and presented systematically with the use of
Microsoft Excel.

Limitations
• Questionnaire is not suitable when a spontaneous answer is very much required.
• Sample size may be inadequate
• There may be certain extraneous factors which are not taken into consideration.
• Investor Psychology changes with time.

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3.CHAPTER

Review of Literature

Matthew Haigh and James Hazelton (2004) study on the market share of SRI funds in the
regions where they are most developed, being Europe, the U.S. and Australia, to show that this
claim is unlikely to eventuate. SRI funds also commonly claim that they will outperform
conventional active mutual funds. That the economic performances of both are similar might
be explained by their similar portfolio compositions. Their paper makes an innovation in the
SRI literature by adopting a legitimacy framework to explain the continued presence of SRI
funds. To achieve desired social and environmental outcomes, SRI funds are urged to address
issues at a more systemic level. A suggested mechanism is the collective lobbying of
corporations and, especially, governments.

Katherina Glac (2009) states that ‘Over the past two decades, the phenomenon of socially
responsible investing has become more widespread. However, knowledge about the individual
socially responsible investor is largely limited to descriptive and comparative accounts. The
question of “why do some investors practice socially responsible investing and others don’t?”
is therefore still largely unanswered’. To address this shortcoming in the current literature, this
paper develops a model of the decision to invest socially responsibly that is grounded in the
cognition literature. The hypotheses proposed in the model are tested with an experimental
survey. The results indicate that the framing of the investing situation influences the likelihood
of engagement in socially responsible investing and how much return the individuals are
willing to sacrifice when choosing socially responsible over conventional investments. The
study does not find support for a relationship between expectations about corporate social
responsibility and the likelihood of engagement in socially responsible investing.

Céline Louche (2009) explores the investor’s perspective of the field of corporate social
responsibility and more specifically on the practice of Responsible Investment (RI).
The aim is threefold: firstly to provide a general background on Responsible Investment –
definition, history, actors and trends, secondly, to give an overview of the existing practices of
responsible investment and its key characteristics and finally to discuss some critical issues
that may shape the future of RI. RI is still a developing and changing activity which is expected

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to keep growing in the future. But responsible investors can play a major role in transforming
the concept of investing by integrating social and environmental dimensions
whilst simultaneously pushing up the issue in a company’s CSR agenda.

Greig A. Mill’s paper empirically examines the financial performance of a UK unit trust that
was initially “conventional” and later adopted socially responsible investment (SRI) principles
(ethical investment principles). Comparison is made with three similar conventional funds
whose investment objectives remained unchanged. Analysis techniques employed in previous
studies find similar results: mean risk-adjusted performance is unchanged by the switch to SRI,
with no evidence of over-or under-performance relative to the benchmark market index by any
of the four funds. More interestingly, changes in variability of returns over time are also
modelled using generalised autoregressive conditional heteroscedasticity models, not
previously applied to SRI funds so far as is known. Results show a temporary increase in
variability of returns, followed by a return to previous levels after around 4 years. Evidence
shows the increased variability to be associated with the adoption of SRI rather than with a
change in fund management. Possible explanations for the subsequent reduction in variability
include the spread of corporate social responsibility activities by firms and learning by fund
managers. In addition to reporting on a previously unobserved phenomenon, this paper raises
questions for further research.

Biodiversity Finance (Rubino, 2000)

Public sector investment is insufficient to stave off depletion of natural resources. Thus, private
sector investment is required. How companies are currently investing in sustainable activities
by investing in the organic food market, etc. So far, green venture capital funds have captured
only a tiny slice of the available institutional money. North American forestry funds (with over
US$7.5 billion under management) are seeking 'sustainable forestry' investments. Partnerships
with government are often required to entice private sector investors into initial participation
in biodiversity conservation.

Potential of Carbon Finance Fund (Singh, 2008)

The CFF would introduce a holistic approach to enable project entities to explore the carbon
finance window for earning resources for the project on a sustainable basis. The CFF would
thereby help upscale new investments with carbon finance as an additional source. It will also

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help in the replication of successful projects. It suggests that the government of India should
establish a Carbon Finance Fund in order to maximize the number of projects that can be
registered with CDM EB. It would augment effectiveness of carbon finance operations. CFF
objectives include addressing issues related to the carbon finance both ex ante and ex post.

Clean is the new green: Clean Energy Finance and Deployment Through Green Banks
(Leonard, 2014)
This paper discusses the need for green banks and finance. It discusses the main barriers to
entry for clean energy compared to traditional sources of energy and elaborates on the need for
green finance to eliminate these barriers. It discusses the principles based on which green banks
function. That they aim to bridge the finance gap and reduce cost of capital for clean energy
ventures. The main goal of green finance is to increase the number of clean energy ventures
undertaken. They are innovating a variety of financial mechanisms to reduce the risk for private
investors. Then this paper compares the difference between green finance in two places,
Connecticut and New York. The paper investigates the possibility of partnerships being able
to increase the popularity of green finance.

Climate Finance: Already in Trouble (KANTH, 2010)

Discusses the failure of the US administration in pledging to cut their carbon emissions. Despite
increase in number of natural calamities in recent time, industrialized nations are unwilling to
cut back and commit to reducing carbon emissions. However, they have agreed to establish a
clean energy fund to fund projects and programs in the developing world towards adaptation.
When discussion moved to whether it would be raised through public or private sources,
though, the developed countries said that all the funds need not be
raised through public sources.

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4.CHAPTER
4.DATA ANALYSIS AND INTERPRETATION

1.Age of Respondents

Row labels Count of age of respondents

18-25 years 37

25-30 years 21

30-45 years 28

45 & above 14

Grand Total 100

Interpretation:

The data shows that individuals of the age between 18-25 years were more in count for the
survey conducted which was 37 respondents in count, 25-30 years respondents were 21 in
count, 30-45 years respondents were 28 in count and individuals above the age of 45 years
were 14 in count.

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2.Awareness about Green Investment/ Finance

Row labels Count of the awareness of GI

YES 54

NO 29

MAYBE 17

Grand Total 100

Interpretation:

The data shows that individuals were having knowledge about the Green Investments,
Individuals who said YES regarding the knowledge about Green Investments were 54 in count
that is 54%, respondents who said NO as a response were 29 in count that is 29% and the
respondents who said MAYBE as a response were 17 as a count that is 17%. Which thereby
shows that people have knowledge about the Green Investment and it is also amongst the age
group of 18-25 years.

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3. Awareness about financial instruments of Green Investment

Row labels Count of awareness about financial

instruments of GI
YES 47

NO 38

MAYBE 15

Grand Total 100

Interpretation:

The data shows that individuals were somewhat aware about the financial instruments of the
Green Investments, the respondents who said YES as an answer 47 in count which is 47% of
the total sample, respondents who said NO as an answer were 38 in count which 38% of the
total sample and respondents who said MAYBE as an answer were 15 in count which is 15%
of the total sample. The data also shows that individuals who did not know about green
investments completely did knew about some of the financial instruments of the Green
Investments

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4. Awareness about Carbon Credit:

Row labels Count of awareness about carbon credit

YES 44

NO 41

MAYBE 15

Grand Total 100

Interpretation:

The data shows that respondents were somewhat aware about the term carbon credit the
respondents who knew about the term carbon credit were 44 which is 44% of the total sample
and people did not had any idea about the term were 41 in count which is 14% of the total
sample and people who responded MAYBE as a response were 15 in count which 15% of the
sample survey.

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5. Count of financial instruments known by individuals.

Row labels Count of financial instruments

Green Bonds 39

Green Insurance 43

Green Loans 55

Green Equities 34

None of the above 37

Grand Total 208

Interpretation:

The data shows that respondents of the sample study were aware about the instruments like
green bonds, green insurance, green loans and green equities but their were also individuals
who did not knew about the green investment instruments which were 37 in count which 37%
of the total sample survey.

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6. Count of individuals who will invest in Green Investments in future.

Row labels Count of individual who will do GI in

future
YES 45

NO 4

MAYBE 51

Grand Total 100

Interpretation:
The data shows that after conducting survey with the people or the individual respondents did
got the knowledge about Green Investment and they become more interested to know about
its instruments and were interested in investing in Green Investments in future.

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5.CHAPTER

5.FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS

The most selected combination by a clear majority, is by both age groups of 30-45 and 45 &
above. This means that they are not aware about the concept of Green Investment, but may still
be interested to invest in these methods of finance. It also shows that the entire sample surveyed
are not aware about this mode of Investment. This shows that they do not know about the term
Green Investment, and the existence of instruments such as carbon credit, green bonds, green
insurance, green loans etc.
The second most common pattern opted is the 25- 30 years of age option. This also means that
they are unaware of the potential Green Investment opportunities, but are at least vaguely aware
of the term.
We can see that majority of these responses YES mainly are from the 18-25 age group. This
points to the fact that the 18-25 age group is more informed about the concept of green finance
in general and may choose to invest in the future.
The patterns by the 25-35 age group than the 18-25 age group. This shows that they are less
informed but in the case of 25-35 age group they are still willing to invest. The indices
demonstrate the diversity of responses within the respective age groups. The pattern diversity
of the 25-30 age group is higher as compared to the 18-25 age group. This means that their
responses are more varied.

SUGGESTIONS
• Government should bring stable policy framework for green finance which encourages
private sector to finance sustainable development programme. For this, India has
launched its National voluntary guidelines for responsible financing which mainly
focus on disclosure of information.

• Environmental performance of the companies can be shown through index. Although

India has 4 ESG index, there should be more ESG index in India to show the
environmental performance of the companies. There should be green rating agencies
also in the country.

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• Government should intervene to increase the profitability of green projects. It can be
increased by giving the tax exemption, subsidies and concessional loans to green
projects which reduce the cost of green projects. It can also be done by charging high
tax and by reducing the subsidies of polluting industries that means increasing the cost
of polluting industry.

• There should be a mechanism to evaluate the projects and business etc., in terms of
environmental, social and governance (ESG) risk. Objective should be to give more
emphasis on environmental risk.

• Awareness among Investors and consumers about the green finance is essential for the
sustainability of the economy. Conferences, newspaper report, seminar can be useful
tools for imparting the knowledge about the necessities of green products, technologies
for energy efficiency for the sake of the future generation because a socially responsible
consumer creates the market for green products.

• More numbers of green financial products should be available to investors so that they
can make investment easily

• 45% of the production comes from medium, small and micro enterprises. So, MSME
has great scope to use energy efficient technology which reduce green house gas
emission and generate renewable energy sources. Although, in India SIDBI and SBI
provide the financial support to small scale industries for using the energy efficient
technology, but more funds should be provided for the same

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CONCLUSIONS

There is a high scope for increasing the awareness of the youth about Green Investment as it is
lacking according to the study. The 18-25 age group are more aware of green finance concept
as compared to the 25 above age groups. We can infer that the age of the individual is linked
to their awareness. The demand for Green Investment is high for foreign investors. It is in
India’s interest to develop and promote the rising demand. Awareness is vital to improve the
market as the survey has shown that while it is only in its growth stage, students are interested
in opting for instruments of green finance. Green Investment provides an elusive market for
investors to invest while promoting sustainable development. With effective measures to
spread awareness of these financial instruments, we can help the economy and environment
grow.

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References & Bibliography:

Books:
• How to Design and Build a Green Office Building: A Complete Guide to Making
Your New or Existing Building Environmentally Healthy By Jackie Bondanza
• Handbook of Environmental and Sustainable Finance By Academic Press
• Handbook of Green Finance
• Energy Security and Sustainable Development

Articles:
• Green finance is essential for economic development and sustainability
• Review on international comparison of carbon financial market Jieqiong Yang, Panzhu
Luo

• Green Finance Is Now $31 Trillion and Growing By Reed Landberg, Annie
Massa and Demetrios Pogkas June 7, 2019

Websites:
• https://www.worldbank.org/en/topic

• https://meetingoftheminds.org/what-are-green-bonds-and-why-all-the-fuss-12486

• https://www.aimspress.com/journal/GF

• https://www.oecd.org/finance/insurance/globalinsurancemarkettrends.htm

• https://data.oecd.org/finance.htm#profile-Insurance

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