Green bond

A green bond pays interest and repays principal like any other bond from the same issuer, so it carries the same credit risk. The extra promise is about the use of the money and about reporting on it. Most green bonds follow ICMA's Green Bond Principles. In India, listed green bonds must also follow SEBI's rules for green debt securities, including the use of an independent third-party reviewer.

The four core components

ICMA's Green Bond Principles rest on four parts:

1. Use of proceeds: the money goes only to eligible green projects, described clearly in the documents.
2. Project evaluation and selection: the issuer explains how it chooses projects and what environmental goals they serve.
3. Management of proceeds: the money is tracked, for example in a separate account, until it is spent.
4. Reporting: at least once a year, the issuer reports where the money went (allocation) and what it achieved (impact).

ICMA also recommends an external review, such as a second-party opinion, to check the framework.

India's rules

SEBI first set rules for green debt securities in 2017 and revised them in February 2023 to align with the updated Green Bond Principles. The definition was widened to include pollution prevention and control and eco-efficient products, and three sub-categories were added: blue bonds (water and the marine sector), yellow bonds (solar energy) and transition bonds. In February 2026, SEBI tightened the independence and disclosure rules for reviewers. A separate circular on greenwashing bans misleading labels and cherry-picked data; if money is found to be misused, the issuer must disclose it and, if a majority of debenture holders want, redeem the bonds early.

The greenium

If enough investors want green assets, they may accept a slightly lower yield on a green bond than on the same issuer's ordinary bond. This gap is called the greenium. In practice it tends to be small and varies over time.

What to check before investing

Read the green bond framework and the external review, then follow the yearly allocation and impact reports. A bond whose reports are late, vague or missing deserves the same doubt as any other weak disclosure. And because the credit risk is the same as the issuer's other bonds, the usual credit analysis still applies.

Questions investors ask

Is a green bond safer than an ordinary bond? No. It is repaid from the issuer's general cash flows, so it carries the same credit risk. The label tells you where the money goes, not how safe it is.

Does India issue sovereign green bonds? Yes. The government published its Sovereign Green Bond Framework on 9 November 2022 and first issued the bonds in January 2023. They also give the market a green government yield curve that corporate issuers can use as a pricing reference.