Green Bonds: Re­spon­si­ble In­vest­ing

Dalal Street Investment Journal - - COMMUNICATION FEATURE - Dr. P.V. Ramesh Ru­ral Elec­tri­fi­ca­tion Cor­po­ra­tion Ltd.

The en­ergy sec­tor in In­dia is un­der­go­ing dra­matic changes as de­mand for elec­tric­ity con­tin­ues to soar. Against this back­drop, power pro­duc­ers are in­creas­ingly seek­ing fund­ing from over­seas mar­kets to meet am­bi­tious goals for the fu­ture, es­pe­cially re­lat­ing to clean and green en­ergy.

The rapid tran­si­tion to an in­creas­ingly con­sumer-driven econ­omy has left the coun­try fac­ing en­vi­ron­men­tal chal­lenges. In­dia aims to achieve re­new­able en­ergy tar­get of 175 GW by 2022 at an in­vest­ment of about $200bn. At present, less than 60 GW of re­new­able en­ergy is gen­er­ated in In­dia. The coun­try’s to­tal power generation ca­pac­ity is around 305GW, with ther­mal ac­count­ing for the bulk of it. In the light of these facts, a sig­nif­i­cant con­tri­bu­tion to ad­dress­ing cli­mate change from the Gov­ern­ment of In­dia in the form of poli­cies and sovereign is­suance in the green bond mar­ket is vi­tal.

That said, the In­dian lead­er­ship has been quick to rec­og­nize the im­por­tant role green fi­nance can play in demon­strat­ing a com­mit­ment to sus­tain­abil­ity. Ear­lier this month, the state-owned Ru­ral Elec­tri­fi­ca­tion Cor­po­ra­tion (REC) launched its first green bond on the Lon­don Stock Ex­change’s (LSE) In­ter­na­tional Se­cu­ri­ties Mar­ket (ISM) and raised $450 mil­lion to fi­nance re­new­able en­ergy projects. The bonds have been of­fered un­der REC'S ex­ist­ing USD 1 bil­lion Medium Term Note Pro­gramme (MTN). The is­sue was over­sub­scribed by al­most four times and drew in in­vestors from Asia, Europe, the Mid­dle East and Africa. Ac­cord­ing to Nikhil Rathi, CEO of LSE, the suc­cess of the REC is­sue was a sig­nif­i­cant achieve­ment, “un­der­lin­ing the strength of in­ter­na­tional in­vestor in­ter­est in build­ing ex­po­sure to In­dia’s green growth story.”

“The funds raised will help pro­mote re­new­able en­ergy projects across In­dia and aid in achiev­ing our gov­ern­ment’s tar­get of 175 GW of in­stalled re­new­able en­ergy ca­pac­ity by 2022,” said P.V. Ramesh, chair­man and man­ag­ing direc­tor of the REC.

REC has been pro­mot­ing and fi­nanc­ing power projects that are op­ti­miz­ing the use of mul­ti­ple en­ergy re­sources with in­no­va­tive eco-friendly tech­nolo­gies, thereby con­tribut­ing to the eco­nomic de­vel­op­ment of the na­tion, so­cial up­lift­ment of the society and pro­mot­ing a healthy en­vi­ron­ment.

Play­ing a key role in achiev­ing Gov­ern­ment of In­dia’s goal of pro­vid­ing re­li­able and qual­ity 24x7 power to all at com­pet­i­tive prices in sus­tain­able man­ner, REC has been sanc­tion­ing loan as­sis­tance to grid-con­nected and off-grid re­new­able en­ergy projects, in­clud­ing so­lar pho­to­voltaic projects, biomass, bio-fuels, bio­gas projects and wind projects. REC’S Green Bond Frame­work is es­tab­lished in accordance with the Cli­mate Bonds Stan­dard ver­sion and also ad­heres to the Green Bond Prin­ci­ples 2016, is­sued by the In­ter­na­tional Cap­i­tal Mar­kets As­so­ci­a­tion (ICMA). The pro­ceeds from the is­suance of Green Bonds by REC will be ap­plied for on-lend­ing to el­i­gi­ble re­new­able en­ergy projects. The El­i­gi­ble Green Projects will broadly cover so­lar projects, wind projects, biomass en­ergy projects, hy­dropower projects, fi­nanc­ing of or in­vest­ment in tech­nol­ogy and/or equip­ment that im­proves en­ergy ef­fi­ciency in in­dus­trial, build­ings and other sec­tors, en­ergy stor­age sys­tems and heat pumps, sus­tain­able wa­ter and waste man­age­ment projects and re­lated as­sets among oth­ers. These will be sub­ject to avail­abil­ity of sec­tor-spe­cific tech­ni­cal cri­te­ria un­der Cli­mate Bonds Stan­dard.

REC views this green bonds ini­tia­tive as a so­lu­tion for reg­u­la­tors, in­vestors and clients to ful­fill their en­vi­ron­men­tal, so­cial and governance du­ties in the back­drop of cli­mate change, while pro­vid­ing re­turns on in­vest­ment. It is a step to­wards squar­ing the cir­cle be­tween mar­ket ef­fi­ciency and en­vi­ron­men­tal sus­tain­abil­ity. While in­vestor de­mand for green prod­uct is grow­ing, the po­ten­tial now ex­ists for In­dia to at­tract sig­nif­i­cant in­ter­na­tional cap­i­tal via a ro­bust green bond mar­ket to meet na­tional cli­mate and de­vel­op­ment goals. The Gov­ern­ment and com­pa­nies across the re­gion need to make a con­certed ef­fort to ad­dress cli­mate change and green bonds will in­creas­ingly be a part of the so­lu­tion.

Dr. P. V. Ramesh, CMD, REC and Mr. Ajeet Agar­wal, Direc­tor (Fi­nance), REC at LSE'S open­ing bell cer­e­mony

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