Green Bonds: Responsible Investing
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