Cost of issuing green bonds remains higher than other bonds 

  • IASbaba
  • January 26, 2021
  • 0
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Cost of issuing green bonds remains higher than other bonds 

Part of: GS Prelims and GS- III – Economy

In news 

  • A study by RBI noted that the cost of issuing green bonds has generally remained higher than other bonds in India, largely due to asymmetric information.

Key takeaways 

  • The average coupon rate for green bonds issued since 2015 with maturities between 5 to 10 years have generally remained higher than the corporate and government bonds with similar tenure.
  • For the US dollar-denominated green bonds with tenure of more than or equal to 10 years, the coupon rate was lower than the corporate bonds.
  • Most of the green bonds in India are issued by the public sector units or corporates with better financial health.
  • Green bonds constituted only 0.7% of all the bonds issued in India since 2018,
  • Developing a better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in this segment.

Important value additions 

  • A green bond is a fixed-income instrument designed specifically to support specific climate-related or environmental projects.
  • Green bonds typically come with tax incentives to enhance their attractiveness to investors.
  • The World Bank issued the first official green bond in 2009.
  • Around $157 billion worth of green bonds were issued in 2019.

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