Indian companies set to boost green finance and clean energy push

Green finance

Giving a major thrust to green finance, Indian companies are beginning to fund environmentally friendly projects, as they look to capitalise on Prime Minister Narendra Modi’s push on clean energy. India Inc is looking to boost renewable energy in one of the world’s most polluted nations and tap rising investor demand.

Becoming the first state-run commercial lender to issue green bonds, IDBI has begun to attract global investors in this area. These bonds are certified to show that funds raised will be used for environmental projects. Green bonds will figure in discussions at COP21 in Paris that began November 30. This is a major sign for Asian companies that the benefits of diversification and positive branding that green financial instruments bring is more than the costs they have to pay to investors who buy the bonds.

“There has been this extraordinary policy push in India. (State companies) have taken up Prime Minister Modi’s mission to grow clean energy and green infrastructure,” said Sean Kidney of the London-based Climate Bond Initiative (CBI), an organization that promotes environmental finance.

India is the world’s third-largest individual greenhouse gas emitter. India has sought investments of USD 100 billion over seven years to boost its solar energy capacity by 33 times to 100,000 megawatts. Mr Modi, who has made renewable energy a priority for his government, looks to capitalise on the falling cost of solar power. Solar power is expected to reach parity with conventional energy by 2017. This would help address India’s chronic power shortages.

A record USD 38.4 billion of green bonds have been issued globally in 2015 to finance low-carbon transport and other environmentally friendly projects, according to CBI. It is more than three times the USD 11 billion issued in 2013. With the demand for such bonds growing, many pension funds and money managers in the developed countries are looking to invest in socially responsible and environmentally friendly assets.

As far as Asia is concerned, the issuers have generally shied away from them due to the absence of a natural investor base for such products and are more costly than a traditional bond.  This trend is likely to change and the IDBI deal saw four-fifths of the order book emerge from Asia, which vindicates a changing pattern of investor approach in the region.

IDBI’s funding follows that of the Export-Import Bank of India, which in March issued a USD 500 million green bond, the first for an Indian issuer in US. dollars. More Indian firms are expected to follow suit.

“Looking ahead, we expect strong growth in green bond issuance from Indian entities, as the central government looks to renewable energy as a means to help plug the country’s perennial power deficits,” the credit rating agency Moody’s said in a report.

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