Set up a Green Investment Trust to fund green infrastructure projects in India.
The Earth Summit (Brazil, 1992) brought a paradigm shift in our concept of development with the recognition that environment and economic policies must work in tandem to improve the quality of life. One of the ways to incentivise sustainable development is through low-cost financing for sustainable projects. Developed world has already recognised the need of dedicated funds for greener projects at low cost.
India is implementing the National Action Plan on Climate Change (NAPCC) to reduce emissions intensity—GHG emissions per unit of GDP—by 33-35% below 2005 levels by 2030. At least 40% of its energy in 2030 would be generated from non-fossil fuel sources. Achieving it requires massive investment as green technologies are capital-intensive. Most of the cases fall under the categories of renewable and sustainable energy that use clean technology; clean transportation, including mass/public transportation; sustainable water management; and efficient and green building.
Responding to environmental problems used to be an unappealing, no-win proposition for managers, and economic forces at work in industry are making it tougher to integrate environmental excellence into a business strategy. Hence, we need a far-sighted programme and creative solutions to address the environmental challenge. Financing, which is considered a passive activity, can contribute a lot towards reducing the cost of doing business in a greener way. Green bonds have emerged as a way to fund green projects that can reduce the cost of capital and improve returns.
Green bonds are the same as corporate bonds, but their proceeds are preallocated to green activities. Fund-raising through green bonds was done first in 2007 when the European Investment Bank raised 600 million euros under Climate Awareness Bonds. The latest success story comes from Russian Railways, whose eight-year green bond raised 500 million euros and was priced at 2.2%. The issuance was oversubscribed with an order-book of over 1.8 billion euros.
Transport is responsible for 23% of all energy-related carbon dioxide emissions globally and 14% of total GHG emissions. Road transport is responsible for 73% of carbon dioxide emissions from all transport. And India’s scenario is no different.
Leveraging debt capital markets towards sustainable transport infrastructure development and services has a huge potential to help achieve climate goals—71% of climate-themed bonds issued relate to low-carbon transport. This is due to a number of rail issuers, which have a long history of using bonds to raise finance. As per the Climate Bonds Standard and Certification Scheme of Climate Bonds Initiative, certain areas are most likely to get acceptance in the green bond market. These include transport infrastructure; alternative (low-carbon) energy refuelling distribution infrastructure; vehicle technologies to significantly increase emissions efficiency (including fuel efficiency, fuel type and other vehicle improvements); and new vehicle technologies and hybridisation, autonomous/semi-autonomous vehicles.
The Indian Railway Finance Corporation (IRFC) set up a Green Bond Framework for fund raising. The proceeds were proposed to be used for financing the Dedicated Freight Corridor and electrification of railways. The IRFC had raised $500 million in 2017 from the 10-year green bond through India INX, GIFT City. In June 2019, Adani Green Energy issued green bonds worth $500 million through India INX at a coupon of 6.25% with three times over-subscription at a time when infra companies struggled raising funds.
The Economic Survey 2018-19 notes that India needs to almost double its annual spending on infrastructure at $200 billion, which will require harnessing private investment. Nirmala Sitharaman, in her Budget speech, talked about international debt issuance. Issuing green bonds overseas can help realise the goal of creating a clean environment. The government can do well by setting up a Green Investment Trust, an agency for green financing, to fund green infrastructure projects. The trust can tap green funds abroad and channel the same towards green projects in India. The financial incentives in terms of low-cost funds will trigger infrastructure investments in clean transport.
(The author is Joint GM & company secretary, Kerala Rail Development Corp Ltd)