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Environmental protection and sustainable development are major considerations during this era. However, governments across the world are banding together to try to develop legislative frameworks for decreasing the global effects of the climate system. The most important duty is to put these blueprints into action and achieve their aims and objectives (Opinion, 2020). The issuance of green bonds to fund green initiatives is an important institutional step for environmental protection and long-term prosperity. These bonds aid in the reduction of risks, the enhancement of a company's image, and the improvement of environmental quality (Verma & Bansal, 2021).
Green bonds, according to Monakshi (2018), are fixed-income financial assets that aid in the formulation and execution of climate change and environmental measures. It is also stressed that the issuer of green bonds uses this instrument to raise money to support green initiatives; in exchange, shareholders receive a defined amount of revenues as interest, and the initial sum is returned at maturity. Green bonds are comparable to corporate bonds; indeed, they are a subcategory of corporate bonds in which the proceeds are pre-allocated to a green endeavor.
The first green bond was released in 2007, and it was initially regarded as a premium product developed by a few development banks. The European Investment Bank (EIB) released a “Climate Awareness Bond” in 2007, while the World Bank issued a “Green Bond” in 2008. Governments began to join international organizations and issue their own green bonds between 2007 and 2012, with the market reaching $10 billion by mid-2012 (Energetica India, 2016). Following this, the UNFCCC formed the notion of 'Climate Finance.' The G20, IMF, and OECD have all explicitly acknowledged the Green Bond market's prospects. The OECD and the International Energy Agency suggested that countries pursue green bonds as a form of climate change funding in the same year. Since then, the World Bank has generated more than US$13 billion for institutional and retail investors throughout the world through almost 150 green bonds in 20 currencies. (World Bank, 2019). The Federation of Indian Chambers of Commerce and Industry (FICCI), an association of Indian business organizations, launched the India Green Bonds Market Development Committee (IGMDC) in December 2014 as among numerous attempts aimed at obtaining an agreement on green bond legislation (Prakash & Sethi, 2021).
In 2015, India managed to enter the green bond market with YES bank, which issued green bonds to fund renewable and clean energy initiatives such as wind and solar. The market has since augmented to include public sector commitments, state-owned commercial banks, state-owned financial institutions, corporate and banking sectors (Agarwal & Singh, 2018). The Securities and Exchange Board of India has also established guidelines for the issuing of green bonds, as well as the selection of appropriate green projects and their utilization. According to Climate Transparency's 2017 'Brown to Green' analysis, India ranked fifth among G20 nations in terms of green bond issuance as a percentage of total debt (Agarwal & Singh, 2018). Also, oversubscription of Indian green-bond issuance demonstrates investors' environmental awareness. Therefore, it is evident that green bonds in India are becoming increasingly popular as a form of funding.
In India, the Securities and Exchange Board of India released formal green bond prerequisites for Indian issuers in 2016, and according to the regulations, debt securities would be considered “green” or “green debt securities” if the funds has been raised and used for assets that lie into one of these following categories: Sustainable and renewable energy, such as wind, solar, bioenergy, and other sustainable energy sources; Clean transportation, such as mass/public transportation; Climate change adaptation; Energy efficiency, such as efficient and green buildings, etc.; Sustainable waste management, such as recycling, waste-to-energy, efficient waste disposal, and so on; Sustainable land use, such as sustainable forestry and agriculture, afforestation, and so on; (Monakshi, 2018).