Why India’s green bond framework sees red in big hydroelectric projects

A relative latecomer to the global market for green debt, India aims to issue $2bn of green bonds

A general view shows the Cheruthoni Dam in the southern Indian state of Kerala. AFP

India plans to issue sovereign green bonds for renewables, clean transport, and water and waste management projects, the project framework released on Wednesday showed.

The government excluded hydropower plants larger than 25 megawatts, the framework said, along with categories including nuclear power generation and projects involving fossil fuels. For a long time, India did not include large hydropower projects among renewables, given the environmental risks.

The green bonds will be used to fund infrastructure and meet clean energy goals in Asia’s third-largest economy.

A relative latecomer to the global market for green debt, India aims to issue $2 billion in green bonds in the fiscal year ending in March. The nation follows Hong Kong, Singapore and South Korea in selling bonds to lower the nation’s green footprint.

To prepare for its market debut, India has formed a Green Finance Working Committee, which will be led by Chief Economic Adviser V Anantha Nageswaran.

The committee plans to meet at least twice a year to select projects and ensure that funds are allocated within 24 months from the date of issuance, the framework said.

The committee will also be responsible for reporting on the impact of projects funded by the green bonds. Expenditures must align with widely used principles from the International Capital Market Association and cannot be double-counted through any other mechanism, the framework said.

“This framework has been anticipated for a while now, so it’s good that it has been published,” said Nicole Lim, fixed income ESG analyst at abrdn in Singapore.

“ICMA lays out the core principles of labelled bonds, articulating the structure and disclosure requirements,” she added.

“The principles however do not provide guidance on standards of what is ‘green’,” which is why some investors prefer taxonomy from the Climate Bonds Initiative, a non-profit that helps mobilise global capital for climate action.

The Oslo-based Centre for International Climate Research gave India’s framework a medium green rating in its second opinion, on par with ratings it has given to Indonesia’s and Kenya’s framework but lower than the dark green rating for Denmark and Iceland.

“The framework’s procedures for management of proceeds and reporting appear adequate,” Cicero said in a statement, however, “it remains somewhat unclear exactly how different expenditures’ environmental impacts and risks will be assessed and weighted against each other”.