India’s Sovereign Green Bonds: Challenges & Future Prospects

Why in News?

India has issued Sovereign Green Bonds (SGrBs) since 2022-23, raising nearly ₹53,000 crore to finance clean energy and climate projects. However, investor demand has remained weak, affecting the government’s ability to secure the expected greenium (green premium) that reduces borrowing costs. Due to this, funding allocations for key schemes like grid-scale solar projects have been significantly reduced.

Aspirants preparing for CLAT Current Affairs, CLAT GK 2026, and Law Entrance Updates must stay informed about India’s evolving climate finance policies, as they intersect with constitutional principles and regulatory frameworks.

Understanding Sovereign Green Bonds (SGrBs)

What Are Green Bonds?

Green Bonds are debt instruments issued by governments, corporations, or international institutions to fund environmentally sustainable projects. These bonds promote renewable energy, climate resilience, and sustainable infrastructure, making them crucial in global climate finance.

What Are Sovereign Green Bonds (SGrBs)?

SGrBs are green bonds issued by the Indian government to finance public-sector initiatives aimed at reducing carbon emissions and enhancing environmental sustainability. These bonds provide long-term, stable returns for investors while advancing climate-focused policies.

Despite their potential, India has struggled to generate strong investor interest in these bonds, leading to a lower-than-expected greenium, which reduces the financial advantage of issuing green bonds.

Key Takeaways for CLAT GK 2026 & Law Entrance Updates

1. Importance of Green Bonds

• Green bonds help governments and corporations raise funds for eco-friendly projects.
• They provide an alternative financing model for renewable energy, climate adaptation, and sustainable urban infrastructure.
• Typically, green bonds have lower interest rates than conventional bonds, assuming funds are used exclusively for green projects.
• The greenium (cost advantage) determines how much cheaper it is for the government to borrow via green bonds compared to regular bonds.

2. India’s Green Bond Journey

• India began issuing Sovereign Green Bonds (SGrBs) in 2022-23.
• The country has raised ₹53,000 crore through these bonds.
• 50% of the capital has been allocated to fund cleaner railway locomotives under the Ministry of Railways.
• The 2024-25 Union Budget initially projected a funding requirement of ₹32,061 crore from SGrBs, which was later revised down to ₹25,298 crore due to weak investor demand.
• The government had to cut planned allocations for several projects due to the shortfall in funds from green bonds.

3. Why is Investor Interest Weak?

1. Limited Greenium – While global green bonds offer a 7-8 basis point advantage, India’s greenium is just 2-3 basis points, making them less attractive to investors.
2. Weak Secondary Market – Indian green bonds lack active trading, reducing liquidity. Investors prefer bonds that they can easily sell in secondary markets.
3. Lack of ESG Investment Culture – Unlike global markets, India lacks a strong Environmental, Social, and Governance (ESG) investment ecosystem, leading to lower demand for such bonds.
4. Limited Foreign Investor Participation – Global investors play a key role in green finance, but India’s green bond auctions have failed to attract substantial foreign investment.
5. Transparency Issues – Weak post-issuance reporting creates doubts about fund utilization, making investors hesitant. Global markets demand detailed tracking of funds to ensure they are used exclusively for green purposes.

4. Impact of Weak Demand on Climate Finance

Due to weak investor interest, funding allocations for major environmental projects have been significantly reduced:

To compensate for the funding shortfall, the government has increased reliance on general tax revenue.

5. Recommendations to Strengthen Green Bond Demand

To boost investor confidence and attract global funds, India should adopt the following measures:

✅ Improved Transparency – Strengthen post-issuance reporting to assure investors that funds are exclusively used for climate-friendly projects.
✅ Develop a Secondary Market – Encourage active trading of green bonds to improve liquidity.
✅ Strengthen ESG Investment Culture – Introduce policies that encourage pension funds, sovereign wealth funds, and global ESG investors to invest in green bonds.
✅ Increase Greenium – Offer a higher cost advantage to make green bonds more attractive than traditional bonds.

6. Key Terms for CLAT GK 2026 & Law Entrance Updates

   Green Bonds – Debt instruments used to finance climate-related projects, issued by governments, corporations, or financial institutions.

   Sovereign Green Bonds (SGrBs) – Green bonds issued by the government to fund public-sector climate projects. India launched these in 2022.

   Greenium – The cost advantage of green bonds over regular bonds. India’s greenium is only 2-3 basis points, whereas global markets see 7-8 basis points.

   ESG (Environmental, Social, and Governance) Investing – An investment strategy that prioritizes sustainability. India is still developing its ESG ecosystem.

   Secondary Market for Bonds – A market where bonds are resold after issuance. The lack of a secondary market for green bonds in India reduces investor confidence.

   Climate Finance – Financial resources dedicated to climate change mitigation and adaptation. Green bonds are a key component of climate finance.

Conclusion: Relevance to CLAT & Constitutional Law

India’s Sovereign Green Bonds (SGrBs) have raised ₹53,000 crore, but weak investor confidence hinders expansion. Structural challenges such as low greenium, weak ESG investment culture, lack of secondary markets, and poor reporting practices are major obstacles.

For CLAT Current Affairs and CLAT GK 2026, it is important to analyze how climate finance policies align with Constitutional Law principles, particularly environmental protection under Article 21 (Right to Life) and Article 48A (Protection of Environment).

As the government pushes for Uniform Civil Code (UCC) and reforms in constitutional law, the legal and financial framework around green finance and climate policies will play a crucial role in India’s sustainable development.