Cost of issuing green bonds remains higher than other bonds 

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.