Green bonds

A green bond is an ordinary bond with one extra promise: the money raised must be used for defined environmental or climate projects, such as renewable energy, clean transport, energy efficiency, water management or green buildings.

Everything else works like a normal bond. The issuer pays interest and repays the principal from its general cash flows. So a green bond carries the same credit risk as any other bond from the same issuer. The label tells you where the money goes, not how safe it is.

The market began in 2007 and 2008 with the European Investment Bank's Climate Awareness Bond and the World Bank's first green bond. In India, issuers range from public sector lenders and power companies to private renewable energy firms and the Government of India, which issued its first sovereign green bonds in 2023.

The main analytical question is whether the green label adds value. If enough investors want green assets, they may accept a slightly lower yield for them. This gap is called the greenium. In practice, it tends to be small and varies over time.

ICMA Green Bond Principles

Most green bonds worldwide follow the Green Bond Principles of the International Capital Market Association (ICMA). They have four core components:

1. Use of proceeds: 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: the issuer reports at least yearly on 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.

SEBI's rules for green debt securities

SEBI first set rules for green debt securities in 2017. In February 2023, it revised the framework to align with the updated Green Bond Principles:

• The definition of green debt securities was widened to include pollution prevention and control and eco-efficient products.
• Three sub-categories were added: blue bonds (sustainable water management and the marine sector), yellow bonds (solar energy) and transition bonds (moving to more sustainable operations).
• Issuers must appoint an independent third-party reviewer or certifier for their processes, including project selection and the management of proceeds. In February 2026, SEBI tightened the independence and disclosure rules for these reviewers (see SEBI's Rules for Green and ESG Debt Securities).
• A separate circular on greenwashing sets out do's and don'ts. Issuers must not use misleading labels, hide trade-offs or cherry-pick 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.
• In May 2023, SEBI added extra disclosure requirements for transition bonds.

Social bonds, sustainability bonds and sustainability-linked bonds now fall under a separate SEBI framework issued in June 2025 (see the Sustainability-Linked Bonds and Loans guide).

India's sovereign green bonds

The Government of India published its Sovereign Green Bond Framework on 9 November 2022. In FY 2022-23, it issued sovereign green bonds in two tranches of ₹8,000 crore each, on 25 January and 9 February 2023, in 5-year and 10-year tenors. The proceeds go to public sector projects that reduce the carbon intensity of the economy.

These bonds also give the market a green government yield curve, which corporate issuers can use as a pricing reference. Later issues, which have moved to 30-year bonds, are covered in the India's Sovereign Green Bonds guide.

The greenium

The greenium is the yield difference between a green bond and an otherwise similar conventional bond from the same issuer. For India's first 10-year sovereign green bond, one estimate puts it at about 9 basis points against the benchmark 10-year yield on the issue date. Measured greeniums are generally small and change with demand.