India’s green bonds market set for strong growth, says BofA-ML
The government’s push for renewable energy will create significant need for green financing, says BofA-ML India head Kaku Nakhate
Mumbai: India’s green bonds market, where $6 billion has been raised so far, will grow significantly in the coming years, senior executives at Bank of America-Merrill Lynch (BofA-ML) said.
“Governments and corporations are opening up to the climate change phenomenon and juxtaposing the requirements from a climate change perspective to the economic requirements of what they want to do and trying to marry these. Green bonds forms a very good bridge to marry these two,” said Gaurav Singhal, director (investment banking) at DSP Merrill Lynch Ltd at a media roundtable in Mumbai on Monday.
According to BofA-ML, the global green bonds market is steadily expanding, with $250 billion raised so far.
“In India, we have seen $6 billion being raised through green bonds so far. These numbers should substantially grow,” said Singhal.
According to Kaku Nakhate, country head, BofA-ML India, the government’s push for renewable energy will create significant need for green financing.
“The government’s intent is that 40% of the total power generation is to be made from renewables. Then, we need to create an ecosystem for the industry in order to bring the desired financing,” she said.
Globally, Bank of America-Merrill Lynch has helped companies raise $17 billion through green bonds.
Nakhate added that BofA-ML has committed $125 billion for green bonds and sustainable financing by 2025. “Since 2007, the approximate low-carbon financing or sustainable financing that BofA-ML has done stands at $70 billion. We have committed to a target of $125 billion by 2025, which would include providing loans, advisory service, underwriting bonds, etc.,” she said.
The increasing activity is also being aided by creation of dedicated pools of capital for green financing.
“The percentage of green investors who are investing into these (bonds), that number has been going up significantly. In some global instances, as much as 50% of the issuance has been taken up by green bond investors—people who have pools of capital dedicated to green bonds. That as a proportion is going up,” said Singhal.
Singhal said while green bonds currently command no pricing advantage, given the increasing number of dedicated pools, there is a possibility of green bonds commanding a pricing advantage over regular corporate bonds in future.
“The increasing pools of dedicated capital tells us that it is not implausible sometime in the future that you should start seeing the pricing tension emerge and you should start seeing pricing advantage. But right now, the numbers don’t show that there is a pricing advantage just because a bond is green,” he said.
According to Singhal, in the Indian context, the private sector has been very active in tapping green financing through bonds.
“The private sector is quite active. On the renewable side, most of the issuances are reasonably big such as Greeno, Renew and Azure; so, the innovation and adaptation has come from private sector quite a bit,” he said.